Management alignment, exit focus key to minority investing success

Strong alignment with the management team and strong focus on exits are key to succeeding in the minority growth investing space, said senior private equity (PE) professionals at the Mint India Investment Summit.

“Our fundamental philosophy is that we partner with high quality teams and we are there to take the business from where it is today to the next level. What drives that is alignment with those teams and that really is our focus area to ensure that there is complete alignment upfront in terms of strategy, execution, exit path,” said Ankur Thadani, principal at TPG Growth. According to Pavninder Singh, managing director (PE) of Bain Capital, it is important to have a high level of engagement in a minority situation. “When we look at minority, we want to be one of the more significant shareholders. We always make sure that it is a high engagement model. So, we are looking for partners in minority situations that will work closely with us,” he said.

PE investors said that it was important to focus on the exit options right from the beginning and having a strong focus on execution. “You have to be really focused on execution and this we do with a mindset that is as rigorous as any buyout fund. Even on the exit side, even before we enter the company, we talk with promoters, management team on the exit options. If one is not working, then at what time we are going to move on to the next one. We are very clear about it,” said Gagandeep S. Chhina, director (PE), ICICI Venture.

Aditya Parekh, co-founder and MD at Faering Capital, said exits are not a big challenge if one has a strong portfolio of companies. “Faering is a believer in minority growth investments. Our view is that it is a little unfair to say there is an exit challenge. It is about portfolios. If you have a strong portfolio of companies, whether they are majority or minority, you should be able to exit them. If you have good portfolio companies that have performed well with high level of corporate governance then the exit issue is a little bit overblown.”

According to Nishant Parikh, partner at law firm Trilegal, minority investors have started focusing on exits early on in recent times. “Although exits have been good in the last couple of years, still a fairly large number of deals have been stuck. But, we definitely see nowadays in minority investment, people are putting a lot of focus on exits and talking about that from day one,” said Parikh.

Industry experts feel that minority investors dwell deeper into diligence than those acquiring control, which is contrary to popular belief.

“The general view is that buyout deals will have far more rigour and diligence. However, it is far more rigorous in minority because at the end of day they will not have control on the company and they will be dependent on the mindset, the direction of the promoter,” said Nitish Poddar, partner and national leader (PE) at KPMG India.

Alignment is also critical to ensure that the parties invest in the right tools such as tech to accelerate value creation.

“Both in the case of buyout and minority what drives the need for technology to be looked at as an enabler for value acceleration is the alignment between the management team and the PE firm. We have seen cases where there is a buyout but that alignment is not there and we don’t get to step in,” said Aditya Narayan Das, senior director (private equity engagement program) at SAP India.