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Brand Strength Becoming Increasingly Important for Sourcing Private Equity Deal Flow

Private equity professionals say developing a strong brand is increasingly important when it comes to investing in companies and hiring employees, according to a new study by BackBay Communications, a strategic financial services branding, marketing and public relations firm, and PitchBook, an independent research firm providing premium data and analysis to the private equity industry.

“For fundraising, deal sourcing and attracting employees, a recognized and trusted private equity brand makes it easier for firms to succeed in a very competitive market,” said Bill Haynes, president, BackBay Communications. “Private equity firms are increasingly coming to recognize 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 U.S. and Europe concerning their attitude and approach to branding. It found that there was near unanimity (98%) about the importance for private equity firms to have a strong brand. 92% 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%) 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,” said 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.”

Building the brand

While performance (81%) 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% in this year’s study, while PR (up 86%), marketing (up 69%) and advertising (up 154%) have also seen dramatic increases.

“Brand is important – no doubt about it,” said 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% are planning to invest more in their marketing materials and website, 44% to invest more in investor relations, and 34% to invest more in public relations.

Brand enhancers

In keeping with this focus on brand management, many private equity firms regularly revisit their brand identity, messaging and website with 35% updating it annually and another 35% updating their brand every 2-3 years. New fund raising and change in firm leadership are the main precipitators for brand re-examination.

Survey respondents say conference speaking (67%), personal meetings (67%), websites (55%) and news releases (50%) are the main areas of focus for brand building.

Social media usage up

The private equity community is starting to embrace social media. Regular social media activity by PE firms increased from under 7% on 2011 to 12% 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% 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,” said 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.”

Key audiences

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% (vs. 78% in 2011)
  • CEOs of target companies: 84% (vs. 68% in 2011)
  • Current and potential employees: 68% (vs. 40% in 2011)
  • Investment bankers: 65% (vs. 62% in 2011)
  • Lenders: 65% (vs. 50% in 2011)
  • The media: 31% (vs. 19% in 2011)

"We have seen many PE firms focusing on specialization when it comes to branding, emphasizing 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."

Survey methodology

The online survey was answered by 290 professionals involved with private equity, including 146 private equity/venture capital firm representatives, 50 investment bankers/intermediaries, 64 service providers (lawyers, accountants, consultants, lenders), 15 placement agents, eight fund of funds and seven limited partners.

Private Equity Brand Equity III white paper

For a white paper examining this private equity branding research in detail, please go to: http://www.backbaycommunications.com, and click on “Private Equity Brand Equity III white paper,” or click Here.

About BackBay Communications

BackBay Communications is an independent strategic branding, marketing and public relations firm focused on the financial services and professional services sectors. BackBay has represented more than 30 private equity firms in addition to leading private equity associations ACG and SBIA. BackBay offers a unique combination of content and creativity. BackBay’s services include public relations, branding, website development, marketing materials, videos, advertising and social media. BackBay is highly regarded for its thought leadership initiatives and relationships with the major business media. With offices in Boston, London and New York, and international agency partnerships, BackBay serves companies around the world. For more information, please visit: www.backbaycommunications.com

About PitchBook

PitchBook Data, Inc. is an independent research firm providing superior intelligence on the private equity industry. As a specialty-focused resource, PitchBook's core strength is its ability to meticulously collect, organize and analyze hard to find private deal data. PitchBook's mission is to provide its clients with the highest quality information on the entire private equity lifecycle, including the LPs, investors, strategic buyers, IRRs/fund returns, private deal valuations, exit analysis, advisors and people involved - plus fundamental data for doing comps analysis - all in a state of the art online platform that is powerful and easy to use. For more information, please visit: www.PitchBook.com.

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