While the headwinds of inflation, rising interest rates, and geopolitical turmoil have slowed the pace of private equity (PE) deal activity in the first half of 2022 compared to the go-go levels of 2021, the party appears to be far from over, especially for the mega-deal.
According to Pitchbook’s latest US PE Breakdown, of the approximately 4,000 deals in the first six months of this year, mega-deals (transactions of $1 billion or more) accounted for more than $137 billion, or 31 percent, with the largest share of deals by value in the $100 million to $500 million range accounting for nearly $200 billion, or 45 percent, in total deal value.
And record-high levels of dry powder ($975 billion in US PE) offer an optimistic outlook for the rest of the year when PE activity overall is expected to recover.
According to PwC’s 2022 midyear outlook, corporate take-privates and public divestitures due to falling public valuations, ambitious transformations beyond reducing cost and growth through acquisition, and talent retention and inclusion will be key deal drivers for the PE market.
With this outlook of cautious optimism for the second half of 2022, it’s clear both the buy and sell-side of PE deals are ripe for strategic planning, a key part of which is brand strategy.
At BrandingBusiness, we continue to see our already robust private equity client base grow with more private equity firms and their portfolio companies seeking brand strategy counsel. Indeed, private equity related projects have dominated the majority of our recent client work. From ramping up newly acquired private equity portfolio companies to assisting with rollups or preparing companies for an exit, here we share our top learnings from a brand strategy perspective that led to successful private equity transactions.
Your narrative is key
Your narrative, the story you tell the world, is critical to not only differentiate yourself in the market but also to set the stage for a successful PE deal. As underscored by McKinsey & Co, “a clear and evidence-backed equity story detailing the asset’s potential may be the most important” element for a successful exit.
Evidence to support a financial narrative is obvious; however, evidence to support the less obvious narrative of your brand story is also essential. From a brand perspective, evidence in the form of the voice of customer research or a brand performance assessment can inform and shape a compelling brand narrative to complement the financial narrative for a successful exit. The combination of both a strong evidence-based financial + brand story offers a more holistic and complete narrative that can ultimately aid in increasing overall enterprise value.
Understand your “why”
Now more than ever, a clearly defined Purpose, or why you exist, enables the overall success of a company. As noted in an article by EY, research found that companies that operate with a clear and driving sense of purpose, beyond the goal of just making money, outperformed the S&P 500 by a factor of 14 between 1998 and 2013. This suggests a true correlation between a clearly defined Purpose and the successful financial performance of a company. In the private equity space, clarity and alignment of a company’s Purpose is especially critical when merging portfolio companies into a new rollup. This clarity and alignment of Purpose create synergies and harmony within the newly created entity by serving as the North Star for all stakeholders.
Clarity of Purpose also lies at the core of a brand. Your “why” is the central component to the foundation of your brand – it sets the stage for and creates a domino effect on positioning, your value proposition and your brand narrative as discussed above. Once your “why” is clearly defined and codified as your Purpose, all other elements of your brand will fall into place. The clearer the Purpose, the stronger the brand, the greater the perceived value and financial success of your company.
Dress for success
How you present yourself in the market by way of your company name and visual identity are also important in the private equity space. Think of your name and visual identity as the way your company “dresses” itself in the capital market. As the idiom goes, you want to dress for the job you want. In the private equity world, companies are dressing to merge or be acquired.
A strategic approach to a company’s name and visual identity, in alignment with an evidence-based brand strategy, is ideal. Your name and visual identity should unify all elements of your brand, including your narrative and strategic positioning, as well as your Purpose, if possible. In the case of a PE rollup, research on existing brand equity of the current companies included in the rollup is crucial and should help shape and inform the creation of the new name and visual identity.
While PE dealmaking in the first half of 2022 has slowed compared to the same period in 2021, momentum of PE deals remains steady with mega and large deals accounting for majority of total deal value. In our experience working with private equity firms and their portfolio companies, the following are vital brand considerations to keep in mind that have led to successful deals:
- Your narrative is key
- Understand your “why”
- Dress for success: your name and visual identity matter
When thoughtfully and strategically created, the combination of these brand elements contributes to the ultimate success of a private equity deal.