Expert Q&A With Jeffrey Bunder, EY, 2011

Privcap: What do private equity investors need to know about adding value to emerging markets companies?

Bunder: I think when you talk about the emerging markets for a lot of PE funds you’re almost talking to them about what’s happened in the past, historically.  Years ago, when a lot of these funds started, they were looking at businesses in developed countries that needed improvements in corporate governance.  Fast forward to today where they look at emerging markets and there’s not a sort of tradition in a lot of these markets around corporate governance.  And it’s things like establishing a board that meets regularly, any sort of audit committee, compensation committee and just the real corporate structure around business and how you conduct business, I think is not necessarily present in a lot of these markets.

So from a private equity investor standpoint, it’s got to be high on their agenda in terms of what they need to institute or implement in a lot of these businesses outside of the United States and in particular in the emerging markets including the brick countries as well as some of these frontier markets that recently have seen a lot more private equity investment or interest in private equity funds.

Privcap: What can EY do to help improve the corporate governance of portfolio companies in emerging markets?

Bunder: I think it starts with an audit.  There are some companies out there, even sizable family owned businesses that don’t have an annual audit.  So for starters, that would be our number one recommendation.  And then from there, it’s really helping the business to sort out its financial reporting, it’s finance department as a function, taking information and creating financial reporting to then provide information to its key stakeholders.  So it’s not only internally the business heads, it rolls up to the private equity investors that are active in managing the business.

Privcap: What is your approach to helping investors manage risk?

Bunder: So from a private equity standpoint, investing in the emerging markets comes with quite a bit of risk.  We have local teams devoted to conducting due diligence on targets and they tend to know where the pitfalls are in the businesses that private equity investors are looking at.  So there is a typical standard amount of work that gets done that is pretty similar in many ways to what happens in the developed markets.  But then there are always some avenues to pursue in local markets that wouldn’t necessarily be obvious to private equity investors, where we have local teams that understand the culture and understand how business is done and know where to uncover, or turnover, the rocks to figure out whether or not some of these businesses may not be operating at the level they should be or doing things the appropriate way.  And these teams have done it and we have a history there.   Whereas years ago, it was difficult to conduct diligence.  A lot of it was a fly-in exercise and we’ve evolved to a point now where we have local teams that are experienced and have done numerous diligence assignments for private equity funds.