“Value-add” – like “proprietary deal” and “top quartile” – is one of those hackneyed phrases that every firm in Asia likes to use for marketing purposes, but very few can actually back up.
“If you go by what people say, there’s an enormous amount of value-added work being done by GPs in Asia today,” says Doug Coulter, head of Asian private equity at LGT Capital Partners. “The unfortunate reality is, there’s relatively little being done.”
Some firms in the region do focus on operational value creation, i.e. working with a company to boost top and bottom line growth – PEI’s Operational Excellence Awards last year honoured the work of four Asia-based investments transformed by Headland Capital Partners, Hony Capital, Kohlberg Kravis Roberts and the Blackstone Group, while several industry sources also cited Bain Capital’s operational work as a standout. But the region still does not have enough GPs that can provide consistent and meaningful value creation.
However, the maturing of economies and industries in Asia is creating a new reality in which operational change is being elevated to a higher level of importance, LP sources say.
For example, listing candidates in the frozen IPO pipelines of China and India now have to show verifiable performance data to regulators and margin growth to investors. And as GDP growth slows in those markets, the wind is no longer blowing strong enough to make turkeys fly. Smart entrepreneur/owners focus tightly on business efficiency to bolster competitive advantage and thrive in a more difficult market.
Private equity firms with operational expertise can play a key role here – and this is an argument that resonates with both entrepreneurs and limited partners.