Private Equity’s ROI on Public Relations

Earlier this summer, the folks from Bain & Co. released the firm’s H1 private equity report predicting the asset class is in store for yet another record year with larger deals, bigger capital raises and ever-expanding mountains of dry powder. No wonder “supersize” was used three times in this short paper. All of this got me thinking again about how important strategic and smart public relations has become for this investment space.

“Private equity firms clearly have a big stick in terms of their importance to and influence over the U.S. economy, but historically the vast majority have spoken softly,” writes my friend, colleague and managing director for Abernathy MacGregor, Chuck Dohrenwend. “In today’s environment, this needs to change.”

Managers today understand and begrudgingly accept they have to take on a more public persona than in years past. It is entirely true the asset class controls a significant portion of the global capital and with that comes great responsibility for transparency. ESG and DEI are also rightly pushing for more accountability and understanding of where and how capital is deployed.

To be sure, these are all important and necessary reasons on their own for managers to become more public facing. However, if that is not enough to persuade executives to embrace external communications, perhaps it just comes down to deal flow and fundraising.

During the due diligence process, sellers are often as concerned about the futures of their employees and businesses as they are about extracting wealth from the deal. Suppose an owner is deciding between two similar competing offers from different private equity firms. Firm A is known in the marketplace for treating employees with respect, dignity, and compassion; Firm B does not have much of a public profile and little is known about how it operates portfolio companies; or worse, it does have a reputation and it is less than favorable. Which firm wins the auction?

Investment bankers also want as much downside protection as possible when capitalizing these deals. Think about how much easier it is for a firm to earn the trust of lenders when its reputation for being able to smoothly execute complex deals and its operational acumen precedes it.

As access to the alternative investment space continues to open to individual investors while at the same time large institutional investors pile more money into the asset class, it is becoming increasingly more difficult for firms to differentiate themselves from competition in order to earn commitments.

“Overall, fund-raising was up to $631 billion in the first half, a pace that would push the year-end total close to $1.3 trillion,” writes Bain & Co.

Should this projection come to fruition, the asset class would be looking at a record-setting year for raising capital.

Predicting what the asset class will deliver in the future is risky, but there is one sure thing to bet on: private equity’s need for skilled communications will continue to grow and if you are a manager today you need to make sure you have invested enough resources into this operationally important thesis. You cannot afford not to.