PE firms scout for CXOs to help improve growth

KOLKATA | MUMBAI: The private equity sector is on the hunt for CXOs, not just for existing portfolio companies but also as they work out deals to buy stakes in promoter-driven companies with the understanding that they bring in new leadership to help scale up growth and business evolution.
The number of such mandates — primarily for CEOs and CFO roles — has seen a significant jump, top executive search firms said. According to senior PE executives, the spurt in demand for CXO talent is driven by an increasing number of buyout deals, where PE firms are acquiring controlling stakes from the original promoters. “The number of buyout transactions that are happening has quadrupled over the past 2-3 years,” said Sanjiv Kaul, a partner at ChrysCapital. “Now you have around 15 buyout transactions a year. That creates a multiplier effect which is why head hunters are witnessing such an upsurge.”

PE firms want to show that their contribution isn’t just restricted to capital; their value addition is in management support, bringing in new management, said R Suresh, the founder of INSIST Executive Search. Sources said several PE funds including the likes of Blackstone, True North, Advent and Kedaara Capital have been involved in CXO hiring for their portfolio companies or ones where they propose to make an investment.

“Typically, there are two models. In some cases, a fund backs an existing management team while buying out the shareholders and in others, the fund starts with a potential CEO candidate and then jointly identifies investment opportunities,” said Akshaya Prasad, a partner at Greater Pacific Capital which manages $1 billion in investments in India. Some of the CXO-level hirings in the past 12-18 months where PE funds are said to have played a key role in recruitment include Anirban Mukherjee of Naspersowned PayU, who came aboard as the CEO of Indian operations, and Sangram Singh, who joined fintech platform Indifi Technologies as its president in end-August.

Most fund managers are of the view that identifying a CEO early leads to better outcomes as the person who will drive the business in future becomes part of the investment evaluation process itself, and is more aligned with the objectives of the fund. “There are three models that we work with. Sometimes we could bring in talent to work alongside an existing entrepreneur when we invest in a company. On other occasions we will inherit the talent and work with them. And there are also instances where we replace the existing talent with new talent,” said Dhanpal Jhaveri, the managing partner of the $5 billion Everstone Capital. ChrysCapital’s Kaul described hiring as a “wave” that had become more pronounced because of competition for deals among funds.

Spurt in demand for top execs driven by increasing number of buyout deals.

A great idea and passion will take a company to a certain level, however to scale it up, different skill sets are required, said Reet Bhambhani, a partner at EMA Partners India. That’s when the PE firms and investors play a key role.

Experts pointed to several instances in the recent past where PE funds purchased controlling stakes from promoters and introduced CEOs into the companies.

A year and half ago, US-based fund Advent roped in Jacob John, the former deputy CEO of Lifestyle department stores, to head inner-wear brand Dixcy Scott, which it had acquired from the Sikka family. Though the Sikkas continue to retain a stake in the company, the plan is to transition the management to the professional executive over a period of time.

PE firms look at business as a three-legged stool — business opportunity, capital and human capital, said Atul Vohra, the managing partner at Transearch India. “PE firms believe that if they have the third piece, then they have a winning combination.”