Marc Raybin, President, Cardinal Communications Strategies, Inc.
Competition for good deals and capital-raising for private equity is increasing exponentially. “As the industry model has proven to be a very lucrative venture, more and more firms have crowded the PE marketplace, vying for the choicest targets,” explains industry data provider, PitchBook.
In the 15-year period between 2000 and 2014 the number of private equity firms, a majority of which are in the middle market, increased an astounding 143 percent. With competition so fierce, how is a firm supposed to stand out from the crowd, especially if it lacks a track record? Simply put, managers need to tell their stories crisply, coherently and succinctly. Not an easy task when you are focused on raising capital and executing transactions at reasonable valuations.
It is not just fellow private equity firms crowding the M&A markets; corporations are sitting on even larger piles of cash than are buyout firms. American corporations alone have $1.8 trillion of “dry powder” just waiting to be deployed. (Source: The Economist)
Most of the largest and most successful private equity firms recognize the value of employing a dedicated public relations function that communicates with the various external constituencies, including current, and especially potential, investors, sellers and buyers. It is easier to build out this team when you have multibillion dollar funds and assets under management, but less feasible when you have just started out and need to focus on deal-making and capital raising. The irony is that the firms tht would benefit the most from enhanced communications do not emphasize this expertise because they are too focused on deal flow and capital raising and do not have the time and manpower needed to enhance this important capability.
Here are the key components on which general partners should be focused when it comes to their firms’ PR and communications efforts:
Differentiation. You have launched your private equity/venture capital firm amongst the sea of competition from other well-heeled firms and corporations. As a firm you have little track record upon which to rely, but you are smart and hungry. You need to think about the skills that make you exceptional – what it is that separates your firm from other firms – and then figure out how to communicate that to the marketplace. This is an arduous and time-consuming endeavor, but vital to reaching the important constituencies. “The new priority for success is differentiated capabilities,” reports McKinsey & Co. “Limited partners expect funds that exploit general partner’s distinctive strengths will do well, while more generalist approaches may be falling from favor.”
Change Your Perspective. Manager selection for LPs has become increasingly difficult as the number of options continues to expand. As the GP, the key is to examine the landscape through the eyes of your prospective investor or seller, figure out what it is they are looking for in their private equity strategies and then communicate how your firm fits the bill with pinpoint accuracy. You need to become part of their due diligence process.
Branding. Even though your firm is not a consumer company, you do have a product to offer your prospective customers (i.e. investors, sellers and buyers). Many of the most successful firms today recognize and embrace their branding image and think in 360-degree terms when it comes to the optics of their varied constituencies.
Competition from fellow middle market firms, corporates and even LPs themselves is expected to climb. Leveraging public relations expertise to communicate with current and future LPs, potential sellers and buyers is increasingly becoming a required skillset for GPs to make their voices heard in an ever-increasingly crowded market.