Private Equity’s Achilles Heel

Private Equity, the darling of institutional investors, has finally graced the Great White Way, but the new drama titled “Dry Powder” hardly rolls out the red carpet for the industry.

The Public Theater’s online promotion for the play (named after an industry term for un-invested capital) describes buyout executives as “the people shaping, and skewing, the American economy.” Furthermore, the private equity firm in the performance is described as having “forced massive layoffs at a national grocery chain,” and one unscrupulous deal maker of the firm in the drama, has plans “to squeeze every last penny” out of a portfolio company, damn the consequences.

While intended for dramatic effect, the play’s language reflects the ongoing reputational challenges facing the private equity community. While many firms are good at announcing new transactions, fund closings or organizational hires, they are not as adept at communicating their positive contributions to growing businesses. As a result, the asset-stripping identity formed more than 30 years ago unfairly lingers.

To be sure, it’s not always easy to generate substantive media interest beyond attention-getting dollar figures, and the industry is not incentivized to tell its story because of tough regulations against pro-active marketing. However, telling its story must be a strategic priority for private equity to create an accurate understanding of the industry.

Buyout firms typically seek to improve the businesses in which they invest through hands-on partnership with company executives, and tapping experienced corporate executives and others to assist a company’s executive team with strategic decisions. This can range from increasing efficiency of supply chains, or launching new products, to expanding into new geographic markets, all to improve operations, drive growth and enhance financial performance.

It is providing strategic guidance to management that is the real driver of value creation in portfolio companies. As a Forbes contributor noted in respect to an upcoming survey by Grant Thornton: “It is not just about the money. While funding is at the core of the private equity industry, firms are highly motivated to ensure their portfolio companies excel.” And, as a Grant Thornton professional said, all the survey’s participants confirmed the importance of “delivering industry best practices, talent management, and asset integration.”

While the industry historically has kept its cards close to the vest, forward thinking firms are exploring the many avenues available for getting the positive message out about private equity’s contributions to business growth. In addition to traditional print publications, online news, social media platforms and broadcast outlets regularly report on business growth where firms can highlight their contributions. One thing is certain: private equity firms must be willing to stretch beyond their communication comfort zone if they’re interested in reshaping the industry’s reputation among the general public.

– Kelly Holman

2018-03-13T13:57:57+00:00 April 5th, 2016|Categories: Financial Communications|