By Lorenzo Milesi
On behalf of BSPEC (Bocconi Student Private Equity Club), thank you for accepting our invitation for this “Coffee Break with”. Would you like to briefly introduce yourself with an overview of your professional and academic background?
My name is Sandeep Mirani, and I am currently a Principal in the Private Equity team at Neuberger Berman in Europe, where I source and evaluate private equity investments as part of an investment team managing over $80 billion globally. Prior to joining Neuberger Berman in 2014, I worked at Paul Capital in London, where I focused on secondary investments, and at Credit Suisse, where I was an Investment Banking Analyst in the Mergers & Acquisitions group and the Global Energy group, in New York and London, respectively. I graduated from the Wharton School at the University of Pennsylvania with a B.Sc. in Economics.
When you were a student, did you already know that you wanted to pursue a career in Private Equity? How did your specific interest in Private Equity begin to grow?
Far from it. As I was getting ready to go to university, I had a passion for math and physics, and I thought I might go on to pursue a career in mechanical engineering. I became interested in finance after I took an entry level course on economics, and also interned as a bank teller at a local credit union on my university campus in Philadelphia where I learned the basics of how a bank works. Finding my economics classes more interesting than physics or theoretical mathematics, I began to take more related courses in corporate finance, macroeconomics, and accounting, amongst others. This led me over my four year undergraduate program to secure internships at various banks globally. In my penultimate year, I took a course on Mergers & Acquisitions, and that convinced me to pursue a career in finance, which culminated in me being offered an analyst role at Credit Suisse’s M&A team in New York. As I worked through the rigorous investment banking program as an analyst, once I had acquired many of the technical skills and work ethic from that role, finding a platform where I could apply these in a more intellectually challenging way, via investing, became an attractive proposition – and that is what propelled my interest in private equity.
Can you explain how Neuberger Berman differentiates themselves from a classic direct Private Equity fund?
A classic direct Private Equity fund spends potentially years sourcing an investment opportunity, builds a value creation thesis around it through detailed primary and secondary diligence, structures and consummates a transaction, and then works with management to direct the strategy and sometimes operations of the underlying business post investment. At Neuberger Berman, our private equity strategy is to be a “partner” of choice to these private equity firms. We do this by investing in their funds, though both our primary investing and secondaries investing strategies, investing directly in companies alongside them, through our co‐investing or private credit businesses, or acquiring stakes in their management companies, through our GP‐stakes business. Important to note, even when we invest directly in a business, unlike a direct Private Equity fund, we typically take a minority position and are not involved in the day‐to‐day management of the investment. We usually also don’t have control over the exit of the investment, and rely on the lead investor’s decision making on most aspects of the investment.
What are the biggest advantages of investing in Primary, Secondary and Co‐Investment rather than just investing in direct Private Equity?
I believe that there are distinct advantages to investing in the various three strategies. Primary investing in funds allows an investor to get exposure to the private equity asset class in a diversified manner, as they can invest in managers across different strategies, geographies, sizes, and areas of expertise. Secondaries investing in funds offers the added benefit of investing in funds that have an existing pool of assets, potentially eliminating both the “blind pool” risk associated with primary investing, as well as the “j‐curve”, given the assets are more mature and the position could have been acquired at a discount to the net asset value provided by the manager. Co‐investments allow one to invest directly alongside a direct Private Equity fund, often without incurring any management fees or carried interest that is associated with primary or secondaries investing. Co‐ investments can also be used as a tool to build a diversified portfolio by investing in companies with different private equity managers, with different strategies or areas of prior experience.
Regarding the activities you perform at Neuberger Berman how would you describe your responsibilities? What are your day‐to‐day tasks and which do you enjoy most?
I would estimate I spend close to 60% of my time sourcing and executing on investment opportunities across our three main strategies, primary investing, secondaries investing and co‐ investing. 30% of my time is spent managing our client relationships and assisting with fundraising and marketing initiatives. The remaining 10% of my time is spent on business development and operational matters, such as staffing of the associates and analysts on our team in London or recruitment of talent. My day‐to‐day tasks vary depending on which of these projects I am working on at any given time. For investments, it could involve spending time analyzing an investment opportunity, running through financial models, or speaking with industry experts over a conference call. For investors, it could be preparing materials to update them on the performance of their investments, presenting our strategies during an onsite meeting to raise new funds, or managing operational aspects of their accounts with us. Finally, recruiting could involve speaking to multiple candidates over the phone or in person, and, as a team staffer, it could mean communicating with the full team to ensure everyone is working on projects that interest them, allowing them to further develop their skills, and ensuring they are able to manage their overall workload. It would be difficult for me to pinpoint the task that I enjoy the most – being able to work across the board on these different aspects of my job is probably the most enjoyable as it means no day is the same.
Throughout your career, is there any remarkable deal that you believe contributed to your personal and professional growth?
There are probably several deals throughout my career which have contributed towards my personal and professional growth in different ways. In some cases, deals that never occurred are ones that I probably learned the most from. When I was an Investment Banking Analyst early on in my career, I was staffed on multiple projects with one of the largest European pharmaceutical companies in the world whilst being based in New York. During my year working on several M&A projects with them, we didn’t end up closing any of the transactions. However, as a result of my involvement with this client, I was able to learn what it takes to run cross‐border transactions, the importance of knowing every number in a 50‐tab excel model for when a question was asked, how to present and speak in front of C‐level management, and the work ethic it takes to be available around the clock for a demanding, but highly important client to the firm. On the flip side, as I’ve progressed in my career, whilst the numbers, presentation skills, and the work ethic have remained important, thinking more about strategy, legal risks, and multiple project management have been the biggest areas of growth. The one aspect of the investment industry I really like is that fact you are always growing personally and professionally. The longer your career spans, the more companies, industries, transactions, economic cycles, and political changes you come across, which forms a wealth of experience to fall back on when evaluating investment opportunities.
What are the procedures used by Neuberger Berman when choosing the ideal target for a Co‐Investment?
At Neuberger Berman Private Equity, there are several key characteristics that we look for when making co‐investments. These include: a sound business model, with sustainable competitive advantages and low sensitivity to cyclicality; multiple and clear options for value creation through organic business expansion, operational efficiencies, acquisitions or other actions; a reasonable investment valuation; a prudent capital structure; an experienced lead sponsor, with strong fit for the specific investment opportunity; clear exit paths, with potential for early monetization; and an asymmetric risk/reward profile, with potential for significant upside while preserving downside protection. In order to assess these characteristics for an investment opportunity, we conduct due diligence on several different aspects of the transaction. These include research on the industry, competition, the company business and model, financial performance and projections, the lead sponsor’s track record and areas of expertise, management, value creation strategy, valuation comparables across cycles and precedent transactions, capital structure, exit alternatives, legal/regulatory implications, ESG factors, tax matters, as well as other industry‐specific considerations. For each investment opportunity, through our work, we identify which of these areas are the ones most pertinent and ones that we want to spend most time on conducting diligence on.
There are three main drivers for value creation – increase of EBITDA, deleveraging and arbitrage on multiples. In your experience, which one has been the most important element?
I prefer investment opportunities with value creation plans that rely on growth in EBITDA, which I believe is most under a sponsor’s control. A company’s EBITDA can grow organically through increasing penetration of existing products or services, launching of new products and services, expansion into different geographies, pricing initiatives and/or cost controls, as well as through bolt on acquisitions or a transformative merger, which often generate synergies. A sponsor has multiple levers they can work with to grow EBITDA. Whilst arbitrage of multiples can contribute a large part in the eventual returns on an investment, they are difficult to predict and thus not one I believe you can rely on. Lastly, whilst I like investing in highly cash generative businesses which can deleverage quickly, this avenue of value creation, absent the former two, generally doesn’t alone result in generation of the target returns private equity looks for when making an investment.
What advice would you give to our readers who are willing to embrace a career in Private Equity?
Private equity can be a very intellectually engaging long‐term career for those interested in finance and accounting, learning about companies and industries, and ones who find the rigor and persistence needed to make investments appealing. Unlike many other finance roles, it is also, at the most senior levels, a people’s business. My advice to young readers looking to embrace a career in private equity would be two‐fold: In order to break into the industry, you need to demonstrate a passion for understanding what human needs businesses in different industries fill and how these businesses work, combined with a fundamental knowledge of financial and accounting concepts. Whilst private equity firms have traditionally recruited talent for their teams from investment banks and consulting firms given the training they provide in both these areas, there are more and more opportunities being provided directly to university students who can demonstrate through their resume and interviews that they understand these two critical elements to be a successful investor.
Thank you for your time!
Author: Lorenzo Milesi