Telling a better story can improve image and enhance returns
Greed driven pirates of the High Street or vital financial backers of ambitious, job creating businesses with an important role to play in the post-COVID economic recovery in the UK? Depending on your choice of reading over the last few days, you could find evidence for either case.
Across two pages of the Sunday Times Business section at the weekend a stinging report screamed ‘Buyout chiefs leave a trail of ruin on the High Street’ and went on to highlight a list of familiar names – Café Rouge, Pizza Express, Cath Kidston and Byron Burgers among them – which it said had fallen victim to PE backed, debt-fuelled over-expansion, their balance sheet weaknesses leaving them brutally exposed and defenceless in the face of the pandemic lockdown and its catastrophic impact on revenues.
Yet only a few days earlier, the veteran investor Sir Ronald Cohen, co-founder of the private equity firm Apax, was urging the Government to offer private investors incentives to help re-capitalise cash-strapped, COVID-hammered, businesses as a way of defusing a looming corporate debt time-bomb. More than a million businesses battling to survive the impact of the virus as the economy gradually re-awakens have secured some £45 billion in state backed loans with almost £31 billion of that having gone to small and medium size firms. There are growing fears that many of these will simply be unable to repay the loans when the time comes and thus risk collapse.
Sir Ronald argued that, contrary to some suggestions that the State should re-capitalise these firms by taking equity stakes, Government should instead incentivise the capital markets and entrepreneurship to do so.
So, as well as all the other health, political, social and economic impacts of the pandemic, the reputation of Private Equity is firmly back in the spotlight. Ironically, the debate has re-ignited just as the BVCA, the British Private Equity and Venture Capital Association, published its latest annual review of Investment Activity in the sector.
The organisation has more than 700 member firms, including over 300 private equity and venture capital houses. In 2019, the total equity amount invested in portfolio companies increased, year on year, by 8% to £22.33 billion with the number of companies receiving new investment in the twelve months rising by 15% to 1530.
According to the organisation, this brought to a total of 4,330 companies in the UK backed by private equity or venture capital and providing some 843,000 jobs.
During the year, over 500 companies were exited with the most popular route being by sale to another PE or VC firm (36.2%) followed by a trade sale (28.1%).
Of course, these figures all relate to the comparatively benign environment before the world skidded to an unexpected halt and the figures that focused the attention related to infection rates and number of deaths rather than rates of return.
However, the COVID crisis will also inevitably create attractive opportunities for private equity investment. How those investments are portrayed and promoted throughout the lifetime of the engagement, from the first day to the last, should be as important a consideration as the financial commitment itself.
Get it right and the reputation of the industry and the value of individual portfolio companies will benefit. Pro-actively building positive corporate profile and reputation in portfolio companies is often overlooked or regarded as of secondary importance. This can be a costly mistake. The first thing any PE house, or any buyer of an investment, will do when evaluating an opportunity is to Google the target. What they need to see is evidence of a strong market profile and a reputation developed over years and not just attempted in the months before exit.
As an agency, we have worked with PE backed businesses which have successfully deployed strategic PR and Reputation Management to deliver enhanced exit results.
Peter Thiel, founder/CEO of Pay-Pal and first outside investor in Facebook certainly shares this philosophy, saying in his book, ‘Zero to One’:-
‘Selling your company to the media is a necessary part of selling it to everyone else. You should never assume that people will admire your company without a public relations strategy. The press can help attract investors and employees.’
Get it wrong and there will be many more damaging headlines.