One size does not fit all in Asia value creation – AVCJ Forum

Gaurav Sharma, head of private equity India of Investcorp, said that bringing in an operational partner who had been a professional CEO didn’t work for his firm. What worked was bringing in an independent director to the board and maintaining continuous – for example, weekly – engagement with the entrepreneur.

“Around six months ago, we invested in a company and brought in a professional CEO. We were excited at the fact that the entrepreneur has accepted the fact the professional CEO can come in and run the business alongside him. But it turns out that the professional CEO who used to work at a certain scale of business doesn’t make a forward workout that we need to do,” Sharma said.

“Bringing a CFO or a chief business officer does work for us, but bringing in an operating partner hasn’t worked for us.”

The view was echoed by Chinta Bhagat, a managing partner in Asia for L Catterton, who emphasised the importance of mutual respect and trust with entrepreneurs.

Bhagat said that the traditional model of L Catterton in Asia was to centralise resources in one location and have people fly in and out. But this has now shifted to in-market project managers arranging resources to stay close to portfolio companies and work with founders and CEOs. 

In addition, L Catterton draws on its strategic relationship with French luxury goods giant LVMH. The chairmen from the LVMH network were often drawn onto the board. This practice is said to bring value because entrepreneurs respect professionals in this ecosystem and look for mentorship.

"Your rights and deal type should not be confused with how you add value. There are cases where we own 28% of a company but have complete majority rights; there is also case that we’ve got 70% of a company where it is a minority situation. From very small minority investments to buyouts, the one thing that is not different across Asia in investing is partnering with founders,” Bhagat said.

“In Asia, company formation and the best businesses in the region are still being created. We are not in an environment where 70% of the market is business already out there. The tone you start with each deal is mutual trust and respect with the partner.”

Chulmin Lee, a managing partner at VIG Partners, the largest buyout fund in Korea, sees a different story in developed Asia. He said that across the 23 buyouts his firm had done, half started with co-ownership – 51% for VIG and 49% for the owner entrepreneur – but eventually, in all cases, VIG replaced the CEO.

“The owner founders are different animals; they don’t think the way we think,” Lee said. “We are very satisfied with the new management team running the company. In developed Asia, sitting in the driver's seat as a buyout fund would be very important.”

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• Topics
• South Asia
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• North Asia
• India
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