Tech talent & PE’s ‘third leg’: Takeaways from PEI’s Value Creation Forum Asia

Experts from CVC Capital Partners, TPG and Pantheon weigh in on the top issues facing value creation practitioners.

Finding and retaining the right staff to implement private equity digitalisation strategies can prove a challenge, a conference has heard.

Value Creation Forum Asia
Clockwise from top left: Alex Lynn, Asia Editor at PEI; Alvin Lam, principal at CVC Capital Partners; Vivian Wang, managing director at TPG; Jie Gong, partner at Pantheon

Speaking virtually at PEI Media’s Value Creation Forum: Asia on Wednesday, Alvin Lam, a Hong Kong-based principal and member of the operations team at CVC Capital Partners, said digital trends were an increasingly important growth lever across the entire portfolio.

“That’s been a challenge, finding the right talent,” Lam said.

“Not just digital but even just IT talent, because [for] a lot of companies you’ve got to start with IT. Probably half our portfolio is entrepreneur businesses around the region, and what we find in those… is that they tend to underinvest in IT.”

More than half (52 percent) of private equity respondents in a recent EY survey said the digitisation of a business was a critical component of the value story and divestment when exiting an asset. The process can impact operating costs, revenue growth and market expansion, the report said.

Roughly the same proportion (51 percent) regarded artificial intelligence as an important value lever for portfolio companies over the next 18 to 24 months. This technology can lead to increased automation and support forecasting that directly impacts margins and cash conversion.

“[For] many companies it’s just about getting the fundamentals right and starting on that journey of kind of creating digital products or using data to inform the management decisions,” Lam said.

“But I think it’s been difficult to find those resources and, more importantly, retain those resources. Especially [because] some of these guys are younger guys that, if you don’t keep them engaged and keep the work interesting, they tend to leave.”

Inorganic growth

Private equity valuations were also highlighted as an area of potential concern. Lam was joined at the event by Jie Gong, a Hong Kong-based partner at fund of funds giant Pantheon, who noted that managers were increasingly using bolt-ons to navigate today’s lofty prices.

“[The] valuation level has been fairly hefty, so I have seen more M&A efforts being specified up front to blend down the entry valuation,” she said.

“Several years ago, you just acquire this company and do a heck of a job in optimising its performance. These days there’s a third leg, which is to make sure there are a number of incremental bolt-ons that over time are highly accretive from a valuation point of view to the business, that help it expand inorganically.”

Though the pandemic may well have catalysed this dynamic, bolt-on activity has been on the rise for nearly two decades. Add-on transactions accounted for about 71 percent of private equity companies’ deal volume last year, up from just 43 percent in 2004, according to McKinsey.

Changing skillsets

Another issue that is top of mind for value creation practitioners is the need for cash management expertise at the portfolio company level, according to panellist Vivian Wan, a Hong Kong-based managing director at TPG and leader of its human capital agenda for portfolio companies in Asia.

“The roles we’re hiring are still very similar, but the focus of the skillset we’ve changed quite a bit,” she said.

“For example, when we’re looking into CFOs these days, and also actually for the past 24 months, we’ve focused a lot on the experience in cash management [and] working capital management, because it’s very important for us to make sure they know how to optimise the cycle times. Also, when we look at chief people officers, a lot of times we will focus on workforce planning, because we may need to do a lot of workforce optimisation.”