One of my specialties is hiring Business Leaders for Private Equity owned Portfolio Entities in Indonesia.
Since 2010 I have successfully led 130+ Executive Search assignments for Private Equity. I have worked for Global, Regional and Local Funds. They all seek to hire exceptional C-Level Talent for businesses that they have invested into.
In this article i give my insights as an Executive Recruiter for PE in Indonesia, an increasingly important emerging market.
Personally, I find Headhunting for Private Equity highly rewarding. Why? Because PE clients possess some of the most intelligent professionals that I have ever come across and their aim is incredibly clear. They seek to “super-charge” businesses they invest into, transforming a company from a “Good Business But Could Do A Lot More“ into a “Super-Star Market Leader“.
I like to be a part of that journey
Having started my career as an Investment Banker in London, I believe it helps me to get into the mind-set of a Private Equity hiring manager. After all, the majority of PE professionals come out of either Investment Banking or Management Consulting.
Private Equity is a fascinating sector, where 3rd party investors seek to become owners in mature, well established businesses. Typically in Indonesia these are still private, family owned companies. They select firms that have fantastic growth and profit potential but are not yet operating at peak performance. There is still work to be done.
The PE Fund invests million of $’s into a company – usually in the local market between US$ 2 – 250 million. In return they take a large % of share ownership. They become either a majority or minority owner.
The Private Equity investor then helps the new portfolio entity to improve significantly in terms of operating efficiency and processes. They will focus on expanding the business and making it more profitable.
In turn, this increases the value of the portfolio entity. So when the PE Fund sells or exits its ownership stake it generates significant Returns On Investment.
Therefore, it is not surprising that wherever a Private Equity Fund invests, it typically requires a new portfolio entity to upgrade its Professional Capital. The people that lead, drive and operate the company on a daily basis. It is these Business Leaders that ultimately generate the value growth the PE Fund seeks.
Steps Private Equity Must Take Before Investing
In Indonesia a PE Fund goes through a long and challenging process before an investment is made. A bit like us as C-Level Headhunters, we have to go through many hurdles before a top-class hire is completed.
First, they must identify a solid company, one they would potentially like to invest into. A business that meets with their fund specific requirements in terms of industry focus, current size, stage of maturity. Also financial health, growth prospect analysis and investment requirement.
Second, once such a business is found, its owners must be open to selling Shares in return for Investment Funds.
Indonesia’s economy is still dominated by huge, privately owned, diversified conglomerates. These businesses, often established by their entrepreneurial Founders 50+ years ago, typically have significant cash reserves. They also have easy access to debt when required. Historically they have been reluctant to sell a large % of share capital to external investors. As they lose 100% control of their business. Instead, when open to external fund raising they have turned to the public markets and sold a relatively small % of share capital.
For the last decade Indonesia’s Private Equity sector has been dominated by Local and SE Asia Regional Funds.
Why? Because Local and Regional PE are typically quite flexible in approach. Their Investment Committee is made up of Indonesian or SE Asia nationals that know Indonesia well. They see Indonesia as the core SE Asia market. Also they understand how to manage risk locally and are willing to be bullish when the opportunity is favourable.
Such funds have strong appetite to invest into high growth industries. Sectors where the growing Indonesian middle class is spending more and more money. This includes Healthcare, FMCG, Manufacturing, Real Estate, Digital, Financial Services, Leisure, F&B and Natural Resources.
Local and Regional Funds have been happy to invest into smaller but well established businesses. Where company owners have been more willing to sell Shares for $’s. Because due to their smaller size they find it more challenging to raise external finance via the public markets.
Such investors have also been open to acquiring minority versus majority ownership stakes. This is often preferred by local business founders.
In the past, most Indonesian Private Equity deals have involved Small or Mid-Cap investments, in the US$ 2 – 75 million range.
On the other hand, large Global Funds often have a minimum investment requirement of US$ 100 million+. Until now, there have been few businesses in Indonesia that have reached the scale and size to attract their interest. And the businesses that do have resisted selling shares to external investors, for the reasons mentioned above.
This is now changing as more and more companies in Indonesia grow to scale and mature.
The ever expanding middle class population is driving large economic advancement. More firms are now reaching a size and value to be of interest to global funds. Alongside this, as the founders of large privately owned businesses age, they are being succeeded by their children. The new 2nd generation leadership is often overseas educated and more willing to involve outside investors to help drive growth and modernisation.
At the same time Indonesia is undergoing a lot of legal reform and is proactively reducing levels of bureaucracy. Such work is removing a lot of the uncertainty / risk that has traditionally concerned outside investors.
Historically, China and India have received the greatest level of attention from Global PE Funds looking to invest in the emerging markets. But as China and India become more saturated and investor competition intensifies, business valuations are getting less attractive. As such fewer deal opportunities exist.
More and more Foreign PE Funds are shifting their eyes towards Indonesia. A huge emerging market that has received less attention than it is due.
The Third issue a PE Fund must overcome before investing, is reaching agreement with the business owner(s) regarding the amount of $ for share %. In other words the business valuation. A bit like “Offer and Negotiation” in Headhunting, this is highly sensitive and things can go wrong quickly. Both the PE Fund and Company Owner must come away happy.
Lastly, the PE investor must gain internal approval, from their Investment Committee (IC), to proceed with the investment. If the Fund is global or regional, the IC will likely be located off-shore. Its members will need to be given a lot of Indonesia market specific data to be able to get comfortable.
At this point, once funds are finally transferred and the PE becomes an owner, the focus changes. It is all about “how do we transform, optimise, grow and improve this company”. How to increase business value and generate the targeted Return on Investment.
I understand that this is typically achieved through the following. 1) Operational and efficiency improvements. 2) Removing unnecessary costs and headcount. 3) Product range diversification and development. 4) New market entry and home market growth. 5) Expanding the businesses physical footprint to generate higher revenues. 6) Selling or closing poorer performing business units. 7) Merging the business with another company etc.
The key to successful “transformation” is having top class Leadership Talent. The executives that will run the portfolio entity on a daily basis
After all, it is the C-Level leaders that will be hands-on managing the business, responsible for developing strategy and executing growth. They will ensure optimisation plans work and ROI targets met.
This Is Where We Get Involved As Headhunters
“An investment in knowledge pays the best interest.” — Benjamin Franklin
In Indonesia, C-Level upgrades tend to be a critical part of a PE Funds investment strategy.
When taking a majority ownership in an Indonesian company, a PE Fund will have the ability to make new senior level hires as they please. And when taking a minority position they will typically require, as part of the deal, to take control of certain key hires. People that they can bring-in to execute investment strategies, such as Chief Operating Officer or Chief Financial Officer.
Often PE clients, especially those located off-shore, will ask for our Headhunter support Before a new investment is finalised. This is because new C-Level hires are critical to IC Approval.
They ask us — “if we invest in this business, is the right talent available in the market / regionally?”.
In such cases we are happy to bring forward top talent for exploratory chats. This helps the investor gain confidence and Investment Committee approval to proceed.
After investing and over time, PE will of course often decide that new C-Level hires are required at a portfolio entity. People that are needed to enhance restructuring or turnaround efforts when performance is still not ideal. Or after losing a key member of the Leadership Team.
As an Executive Search Firm our job is to identify, excite and secure exceptional talent for these challenging roles.
Private Equity require Business Leaders with a real “roll sleeves up” mentality, high levels of energy and ambition. People that are strong in strategic thinking, possess excellent operational skills
When working for a Private Equity Fund, they generally require total discretion and confidentiality. They do not want the market to know about their hiring plans. For instance their investment is not public knowledge or they are looking to replace a senior member of staff.
We are always happy to accommodate a Private Equity Funds needs. ProCapita has a strong track record of working on a No Name basis.
We can bring top talent forward for an exploratory chat and only disclose our clients name once receiving the green-light.
In conclusion, we are well aware that PE clients have incredibly high standards, they require the very best Executive Talent possible. They seek those game changing people that can transform businesses, drive large scale growth and turn “ok but could do better” companies into “super-star market leaders”.
We love assisting PE Funds, being a part of the growth story and we are more than happy to go the extra mile to make those Gold Star hires take place.
This Article provides a useful overview on Best Practices for Recruiting at the C-Level in Indonesia.