Industry experts say there have been over 300 such engagements in one or more aspects of value creation, including business reallocations, in the last two years. revenue increase, cost change, Capital efficiency, and system or process reengineering.
Amit Dalmiya, senior managing director, Blackstone, said, “It’s like a T20 game – we have to maximize the value in a limited investment period of 5 years. We are currently working with 3-5 advisors.” “Blackstone believes in a ‘business-builder’ approach. Once the investment is made, portfolio The operations team is fully engaged to drive and deliver value creation. For this, we pull in fit-for-purpose experts such as those from consulting firms or other consultants as required.”
Dalmia said that in closing half of Blackstone’s private equity portfolio, they used some form of advisors to gain an outside perspective or drive a transformation program. Private equity firms are hiring Big Four firms such as EY, Deloitte and PwC and strategy consultants such as McKinsey, BCG, Bain and Accenture to drive value creation engagements.
Boundless KhandelwalManaging Partner, Strategy and Transaction EY IndiaSaid the firm had backed 150+ contracts for over 50 PE funds over the past few years.
“Private equity firms are now actively driving multiple expansions. In the past, they often relied heavily on financial jury and cost optimization to enhance the value of their investment. This often results in higher stock prices and higher price-to-equity multiples than their peers. As the private equity landscape has undergone a metamorphosis over time, so too has the mechanism by which value is generated,” Khandelwal said.
The increasing size and value of PE deals, along with an increase in large buyouts, are among the factors driving this trend. Additionally, in some cases, the exit period has been shortened, requiring a more strategic approach.
according to a venture intelligence Reportedly, as of November-end, 2022, there were 1,191 VC/PE transactions in the Indian market valued at $44.1 billion. And according to a Bain report, in 2021 alone, India’s market registered over 2,000 deals worth $70 billion and touched $36 billion in PE and VC investments. Deloitte India partner Rajat Mahajan said, “There is a growing emphasis on value creation through operational turnaround, expanding into buyouts with large valuations, for which funds are setting up internal operations teams and engaging with external advisors.” Huh.” Have been involved in many such works in the last few years.
According to Mahajan, with global interest rates rising, and US and European markets facing a bearish trend, higher returns are expected from the Indian market, which has recovered extremely well. In a typical private equity investment, the holding period is around 5-6 years, during which the company starts preparing for an exit at the end of the fourth year with an aim to exit in the fifth or sixth year. This means that the PE firm has 2-3 years to drive value creation within the portfolio company.
So how does the arrangement with an investee company work in such an assignment?
“In one of our portfolio companies, we were targeting margin expansion of 300 points and we hired a consulting firm for the same. In 6-7 months, we have a program that will create a huge impact. will, and we are now in the implementation phase. It should be clear where they can add value. If expectations align between the advisors, the PE firm and company management, it becomes a joint team effort and the relationship works. does,” Dalmiya said.
In many engagements, consultants are open to incentive-based fee structures. Blackstone’s Dalmia said they align the management team and the consulting firm’s incentive structure so that everyone is working toward a common goal.