As we emerge from a tumultuous 2022—marked by volatile macroeconomic conditions driven by soaring interest rates, rising inflation and geopolitical tensions—private equity (PE) firms are facing a harsher reality in which strategic communications must no longer be an afterthought. With less deals coming to market, competition for suitable targets and investors has intensified. Private equity firms will need to focus on differentiating themselves from each other and demonstrate to their investor base that they are in the strongest position to provide extraordinary returns on investment. It will also be important for firms to communicate their value creation strategy to potential targets.
Traditionally, private equity firms have opted to maintain a low profile and let the “results do the talking”. However, in today’s market, where firms of all sizes are increasingly competing on everything from funding and deal flow to investee company mentoring and retaining talent, clearly articulating a firm’s positioning and raising awareness through complementary tools and tactics is critical.
The narrative about the industry also needs to change. This is a booming industry that is supercharging business growth by unlocking funding for firms that would not be able to easily access public markets, addressing underperformance and enabling companies to navigate disruption, grow and reach their full potential. According to a 2022 report by the British Private Equity & Venture Capital Association which measured the contribution of the businesses backed by private equity and venture capital directly contributed £102 billion to the UK economy, representing 5% of UK GDP in 2021. On jobs, private equity-backed businesses employed 1.9 million workers last year, meaning that 6% of the total jobs in the UK are supported by private equity-backed businesses. Unfortunately, the benefits and success stories remain largely untold.
The industry clearly has a huge image problem. Time and time again, we see media stories labelling private equity firms and the wider industry as “asset strippers” and “corporate raiders”, whose modus operandi is “predatory” – gobbling up businesses, firing staff and creating value for shareholders at the expense of employees and other key stakeholders. The industry has greatly evolved and while there may be a few exceptions, most bear little resemblance to this stereotype.
With large transactions or deals involving high profile and often iconic, much loved ‘national’ brands, the stakes for private equity firms are even higher. Firms have a wide range of stakeholders than ever before – from media, government, unions, to institutional investors and advisers – all of whom are insisting on greater transparency, disclosure and communications. ESG and DEI priorities will also call for more accountability and understanding of where and how capital is deployed.
The sheer size and growth of the private equity industry has drawn the attention of regulators worldwide, who have increasingly proposed to ramp up their oversight, restrict the practices of private equity and create a culture of compliance. This will undoubtedly create some additional challenges and amplifies the need for firms to combat the growing mistrust the industry faces in public and political circles.
In the UK, the government is keeping a watchful eye, particularly in health & social care. Last year, Lord Sikka asked the government about the impact of private equity on the social care sector. He alongside other members, argued that private equity owners of care homes were taking too much money out of businesses impacting care quality and paying little tax, but paying investors significant dividends. Just last week, a private equity funded care home came under fire for failing to safeguard its residents from harm. There are concerns about what this will mean in the future, given the growth in demand for care services and PE’s appetite for healthcare investments.
There is a growing recognition among private equity firms that their private portfolio companies define their public image. It is every private equity firm’s worst nightmare if a portfolio company fails as it can create the perfect media and political storm. This level of scrutiny can lead to delayed exits, lower returns and delayed fund launches. With private equity squarely in the public eye, clear and precise strategic communications that go beyond buyouts and traditional financial communications can play a huge role in shaping reputation internally and externally. A positive reputation can attract and retain the best talent, deliver value in terms of price, approval and ultimately the long-term success of investments.
As the industry’s public profile continues to grow, firms will need to exert more control over their reputations to shape perceptions and avoid being an easy target for critics looking to advance their own agendas. Even though a firm’s decision or action may not align with the interests of all stakeholders, at a minimum, straightforward communication will help explain why certain actions were taken, create greater understanding and if delivered effectively mitigate any negativity that may arise.
Deploying strategic communications tools that can bolster and protect a firm’s reputation, build their brand and communicate their story will be an important driver of a firm’s success and a crucial tool in highlighting the positive net impact the industry contributes to our economy.
