Private equity on the world stage – communications lessons from Berlin
If it was ever in doubt, with over 4,000 attendees and Kim Kardashian as a keynote speaker, this year’s SuperReturn International conference in Berlin once again showcased the might and increasingly global reach of private equity and venture capital.
The irony, however, is that while private markets have become more and more dominant in the global economy, the current environment is one of the most challenging that General Partners (GPs) have ever faced. The rising cost of capital, a dearth of M&A, the toughest fundraising market seen for years and increasing competition for talent have all contributed to a subdued atmosphere.
To address these headwinds, the need for thoughtful communications has never been as strong.
As we settle back at home from this year’s event, we offer some of our key takeaways and advice for firms and their communicators.
Pick your spots
While the big continue to get bigger, there is a growing recognition that brand cachet is no longer enough. We’ve seen many GPs moving away from a generalist approach, with even large traditional buyout funds increasingly defining their investment focus across a select number of sectors and sub-sectors.
Managers can’t be all things to all Limited Partners (LPs), and therefore need to pick their spots and develop thematic communications strategies which demonstrate their expertise and value creation thesis across each specific sector or geography to grow market share.
A wave of consolidation
These same firms are also the most likely to participate in the wave of industry consolidation taking place as the largest managers seek to address blind spots in their existing platforms.
Many on the ground expect the wave of M&A between GPs to continue, and, as is the case for any transaction, acquirers need to ensure that the rationale for any deal and how it benefits the stakeholders of both firms, is clearly articulated.
Space for specialists
The good news for smaller, regionally-focused or specialist managers is that LP appetite for their strategies remains strong, and ultimately, the best managers will be rewarded, regardless of a slowdown.
However, with inherently lower brand recognition, these GPs need to ensure that they are telling a clear and differentiated story that contextualises the role of their strategy in an LP’s overall private markets portfolio, as well as how it complements cornerstone allocations. For example, European managers seeking to access the US’s deep pocketed institutions need to firstly answer the ‘why Europe’ question to tell the local story to a global allocator audience.
Deal…or no deals
With such limited deal activity, it’s hard to assess the extent to which private markets valuations have been hit in comparison with their public equity counterparts. However, as Ronan Keating sang during one of the conference’s cocktail parties, “you say it best when you say nothing at all”.
With the public equity markets still effectively shut for new listings, and firms unwilling to sell at lower valuations, many GPs are struggling to exit portfolio companies outside the very best performers. The trend towards the use of continuation funds and secondaries transactions has continued to grow apace, and such innovations will continue to attract scrutiny from outside the industry.
To avoid accusations of financial engineering, managers need to make the case that they are committed to ongoing value creation, and that extended hold periods are in the best interests of the company and its stakeholders, as well as their existing investors.
A paucity of P2Ps
The much-vaunted wave of public-to-private transactions has largely failed to materialise, particularly in the UK. Some scepticism exists that this expected source of deal flow was the result of speculation created by those who would benefit from such transactions.
That said, depressed public equity valuations increase the likelihood of such deals, and in these circumstances, communications considerations represent an integral part of the due-diligence and risk management process. GPs should be aware not only of local regulatory requirements, but also local political and broader public sentiment to ensure a strategy is in place to address all relevant stakeholders.
Telling the portfolio company story
Many private equity firms have long sought to tell their own stories through those of their portfolio companies. What is striking now however, is the number of GPs that are including communications as part of their in-house operational teams and offerings for investee companies.
Traditionally, portfolio company communications were regarded as one of the last pieces of the puzzle, and a means of courting potential suitors shortly prior to exiting the business. However, in a challenging exit environment, there is a recognition that this process needs to start sooner than ever, and should track the entire growth story of the portfolio company from start to finish.
Furthermore, its addition to the GP operational toolkit reflects the increased competition for business, and growing war for talent across all sectors, as well as the role of communications as a value creation lever, rather than a nice to have.