Consultancy Alvarez & Marsal is expanding its activities in India to offer services to private equity firms and their portfolio companies to improve operations.
The new private equity performance improvement (PEPI) division will offer pre-acquisition operational due diligence, acquisition planning and post-deal performance improvement to portfolio companies.
“Unlike in the previous cycle of private equity in India, the firms have now realised that operations are important in getting returns on investment,” said Vikram Utamsingh, co-head of A&M India and managing director of the firm's transactions advisory group in Mumbai. “The thinking has changed in Indian private equity, and A&M offering this service fits very well with that new demand.”
The firm will combine the new division with its pre-deal offering which comprises commercial, financial, tax, forensics and operations due diligence capabilities, Utamsingh told Private Equity International.
“As a PEPI practice, we feel that it's very valuable to private equity in India because historically private equity investments in the country were largely driven by the scale of the market opportunity – they did not focus that much on the companies' and management's capability to be able to deliver the business plan.”
“Given India's reputation for poor performance and general partners' perceived inability to achieve exits, PEPI will add tremendous value to the business,” said Utamsingh.
According to Utamsingh, India went through an up and down cycle in the last five to seven years since the Lehman crisis that resulted in companies not having the capability or management bandwidth to be able to execute their business plans in a changing environment.
A&M offers its PEPI service globally, and includes more than 250 professionals worldwide in the division.
“We are the only guys in India doing operations due diligence – what we are trying to do is make an assessment that will reveal any bottlenecks in the operation that will prevent the company from growing, then we steer it so it will grow by the business plan,” Utamsingh added.
The PEPI division looks at a business over the next five years using financial, commercial and operational due diligence, including a company's historical results and local market trends, before calculating its projections.
“We've had a great start to our business. The feedback from the PE community is very positive. However for the portfolio companies [because most of it is minority investments], there is still some resistance.”
“Some companies appreciate the differentiation we bring, while some still need time to understand that we can really make a difference,” Utamsingh said.
He said the firm has been working with about 25 private equity firms on different projects in just 18 months since it initiated the service.
“Today when we talk to PE firms, there are three things we need to look at to scale up: market opportunity, governance and historical performance of the business and operational capability. These things will tell us who we need to hire, how to improve working capital, the finance function and management information systems, what to do on core operations like supply chain, procurement, operating cost side – all very important levers for the company to succeed.”
The firm has also appointed Amith Karan as managing director of its PEPI practice. Before joining A&M, Karan spent three years as part of the management team of research and analytics firm Aranca, and six years prior to that with consulting firm McKinsey.
A&M began operations in India in 2008 and has worked with PE firms, local and multinational firms and banks to improve the performance of or turn around companies. The firm also provides advisory services on crisis management, transaction tax and exit readiness.
Over the past year and a half, A&M has been offering turnaround services to troubled companies and their lenders , transaction due diligence services to corporates and PE firms, as well as PEPI services.
The firm's team in India has grown from 15 to 80 professionals in just 18 months.