Private equity professionals say developing a strong brand is increasingly important when it comes to investing in companies and hiring employees, according to a study by BackBay Communications and PitchBook.
“For fundraising, deal sourcing and attracting employees, a recognised and trusted private equity brand makes it easier for firms to succeed in a very competitive market,” says Bill Haynes, president, BackBay Communications. “Private equity firms are increasingly coming to recognise how important it is to build a strong brand and actively manage their firm’s reputation.”
The study, Private Equity Brand Equity III, surveyed 290 private equity general partners, limited partners, fund of funds, placement agents, investment bankers, intermediaries, lawyers and consultants serving the private equity industry in the US and Europe concerning their attitude and approach to branding.
It found that there was near unanimity (98 per cent) about the importance for private equity firms to have a strong brand. Ninety two per cent said a strong brand helps private equity firms source deals, with a similar proportion saying it helps them raise new funds. Four in five (81 per cent) also said a strong private equity brand helps attract and retain talent.
“The industry is much more sophisticated now than it was even just ten years ago and a strong brand is a critical differentiator,” says Graham Hearns, managing director of global marketing/communications and talent management at The Riverside Company. “Sellers are extremely sophisticated these days. They understand the asset class and have lots of great choices. As they thoroughly evaluate their options, having a strong brand that keeps popping up in a positive way that has real teeth and attributes is critical.”
While performance (81 per cent) remains the single most effective way to build a strong brand, respondents are increasingly recognising the importance of investing in active brand management. The proportion of respondents citing the importance of investing in IR to building a strong brand has more than doubled to 33 per cent in this year’s study, while PR (up 86 per cent), marketing (up 69 per cent) and advertising (up 154 per cent) have also seen dramatic increases.
“Brand is important – no doubt about it,” says Lee Gardella, managing director of Adveq. “Institutions are more comfortable buying brand. Firms need to develop a brand they want to be remembered for. You should be out there marketing the firm in between fundraising cycles. It makes the fundraising less painful and can be the difference in shortening the fundraising cycle. It won’t cover for bad performance, but if you set the right tone with the right information and talk to the right people it could help beyond the numbers. When you are deciding which funds to include in your commitment plan, you may say that all things being generally equal I find this group more comfortable to work with and I’ve been talking to them for the last two years.”
A growing recognition of the value of a strong brand is being reflected in the budgets of private equity firms and others working within the industry. In the next 12 months, 56 per cent are planning to invest more in their marketing materials and website, 44 per cent to invest more in investor relations, and 34 per cent to invest more in public relations.
In keeping with this focus on brand management, many private equity firms regularly revisit their brand identity, messaging and website with 35 per cent updating it annually and another 35 per cent updating their brand every two to three years. New fund raising and change in firm leadership are the main precipitators for brand re-examination.
Survey respondents say conference speaking (67 per cent), personal meetings (67 per cent), websites (55 per cent) and news releases (50 per cent) are the main areas of focus for brand building.
The private equity community is starting to embrace social media. Regular social media activity by PE firms increased from under seven per cent on 2011 to 12 per cent this year. One-in-three firms now has a social media presence to enhance their brand, with the most frequently used tools including Twitter, Facebook, LinkedIn, YouTube or a company blog. Another 20 per cent said their firm currently does not use social media, but they would like to start.
“Social platforms such as Twitter and YouTube are on the cusp of becoming a recognised part of the private equity communications tool kit,” says Toby Mitchenall, London-based director of BackBay Communications. “One-in-five of the world’s largest private equity firms is now actively tweeting, for example. A further one-in-five have registered their profiles but have yet to start tweeting. We estimate a good many more are using Twitter and other social media platforms in a passive way: as a listening post to gauge opinions of them, their portfolio companies and the industry in general.”
Across the board, survey participants see private equity firm brand strength as increasingly important with all of their audiences. CEOs of target portfolio companies and employees notched noteworthy double-digit gains reflecting a competitive deal sourcing and hiring environment. According to the survey, the key audiences for a strong brand are:
• Limited partners: 86 per cent (vs. 78 per cent in 2011)
• CEOs of target companies: 84 per cent (vs. 68 per cent in 2011)
• Current and potential employees: 68 per cent (vs. 40 per cent in 2011)
• Investment bankers: 65 per cent (vs. 62 per cent in 2011)
• Lenders: 65 per cent (vs. 50 per cent in 2011)
• The media: 31 per cent (vs. 19 per cent in 2011)
"We have seen many PE firms focusing on specialisation when it comes to branding, emphasising specific sectors, operational expertise or a particular way they source and structure transactions,” said PitchBook founder and CEO John Gabbert.” Recent regulatory changes around general solicitation should only lead to more active brand-building in the future."
