Now, PE players have more say in management

The global economic slowdown has prompted private equity (PE) players to get involved in the day-to-day management of companies in which they hold sizeable stakes. The move is aimed at maximising returns on their investments.

PE players the world over are taking active interest in managing companies as they see a slim chance of getting expected returns by exiting them in the near future.

Involvement of PE firms in the day-to-day management of companies includes helping promoters in strategising their business, marketing their products and services, aiding them in tying up the working capital, restructuring operations and supervising cash flows.

The economic slowdown has delayed PE players’ exit from unlisted firms as that would mean foregoing expected returns on their investments. The situation is not any better in case of listed companies either.

According to a research by SMC Nexgen Capital, a New Delhi-based investment bank, “PIPE (private investment in public equity) deals of 2007 have incurred a loss of 51.65 per cent or Rs 14,000 crore in value, owing to a continuous fall in the value of shares and rough market conditions in 2008.”

“PE investors like us are getting involved in unlisted companies’ day-to-day management. The trend will now only pick up and PE investors will spend more time, providing strategic inputs and helping promoters tie up their working capital requirements,” said Kotak Private Equity Group CEO Nitin Deshmukh.

Kotak is involved in managing companies like Dynaspede Integrated Systems and SIRO Clinpharm.

Dhanraj Bhagat, partner, Grant Thornton, said, “PE investors would like to ensure that their investments are in safe hands. Hence, they would also like to monitor cash outflows, provide marketing guidance and go in for corporate and debt restructuring, intended to maximise revenue.”

According to a survey of global PE players by London-based Economic Intelligence Unit, “PE firms will seek to bolster the performance of firms in their portfolio through closer involvement in their day-to-day management. For this purpose, they will go for more recruitment at operational levels.” The survey noted that 66 per cent of the respondents were ready and preparing to wait longer to get expected returns.

“In some cases, PE players are helping firms find strategic investors to get more capital as well as opportunities,” said Deshmukh, adding that with the primary market drying up, there were ample opportunities for fresh PE deals.