The Sky Isn’t Falling – Communications tips that will help private equity navigate these challenging times

By Chuck Dohrenwend

It’s no secret that these are challenging times for private equity firms. As if “higher for longer” interest rates and still-tight lending standards weren’t enough, sponsors also have to contend with heightened political scrutiny, increasingly aggressive and litigious regulators, and a generally volatile geopolitical and macroeconomic environment.

What’s a private equity firm to do? First, recognize that the sky isn’t falling and, while yes, the current environment is challenging, there are steps sponsor firms can take to communicate more effectively and manage their risks:

Conduct a Hygiene Check. First impressions matter. Whether it’s an investor looking to commit capital to a fund, a company seeking to transact, a jobseeker considering employment, even a regulator preparing to review and regulate a pending private equity transaction, their first step is likely to be an online search for the most readily available information about a firm. That search is likely to lead to the private equity firm’s own website, LinkedIn pages (for the firm itself and for its individual executives), and other social/owned channels. Firms should ensure that their profiles on all these channels are accurate, verified and up to date. Firms should also take control of their Google Knowledge Panels, if they haven’t already, and work to update their Bloomberg profiles and Wikipedia pages (preferably with a professional who knows how to navigate the very nuanced editing process in the Wikipedia community).

On any channel, a firm’s public profile should always provide an accurate overview of the firm’s investment strategy and business model. The profile should address topics that are of interest to the firm’s stakeholders, including not only its limited partners, employees and portfolio company management teams but also the policymakers and regulators who can influence and even curtail the firm’s investment activities and returns.

We recommend highlighting the benefits the firm’s investments deliver to not just its own portfolio companies but also those companies’ employees, customers, vendors and other stakeholders. Firms also should show how their investments foster dynamic and competitive industries that drive economic growth and opportunity and help strengthen and sustain operating companies. Keep an eye out as well for language that may function as a red flag in the current environment like “roll-up,” “platform,” “consolidation” and anything to do with China.

Announce Deals Differently. Regulators and other stakeholders are looking skeptically at private equity transactions and their impact on the economy and a broad set of public constituencies. As noted above, first impressions matter, so firms and their portfolio companies should go on offense to shape the public narrative about a deal.

We therefore suggest that any transaction announcement should reference the sponsor firm’s track record of non-financial performance at its past and current portfolio companies, demonstrating social value through metrics like job growth, environmental impact, diversity, employee and customer satisfaction, and (for healthcare investments) quality of care. Even if a firm decides (for whatever reason) not to formally announce a transaction with a press release, direct communications to key stakeholders should convey these same broader benefits.

Additionally, deal communications should address the broader customer welfare standard that is being adopted by the FTC and other regulators. The announcements should articulate the benefits that clients and consumers will derive, beyond continued pricing stability and/or competitiveness, from a private equity firm’s investment and/or a portfolio company’s merger with another company. Given the FTC’s new perspective on roll-ups, if the transaction being announced is a firm’s second or third one in a particular industry or represents a vertical merger then the private equity firm should make sure it clearly explains why its investment strategy will benefit the (merged) portfolio company’s industry and stakeholders. Firms should also make clear that their work to expand a company isn’t confined to one particular market.

Talk to Those Who Matter. Getting buy-in from core stakeholders such as employees, customers, limited partners, regulators and, in the case of publicly traded private equity firms and/or target companies, shareholders is critically important to the success of a private equity firm’s transactions, so sponsors should continue to prioritize direct-to-stakeholder communications. Relying solely on the traditional media or allowing an outside party to serve as the primary communicator risks diluting or possibly distorting the message and limiting the ability of a private equity firm to shape public opinion. Tools like the press release and traditional media engagement remain important, but there is no substitute for reaching the people who have sway over a firm’s success directly through employee emails and town hall meetings, calls to customers, outreach to public shareholders and in-person meetings with elected officials.

Private equity firms should integrate communications into their due diligence process (the earlier the better) and planning for a deal signing. Key elements of this include:

 

  • Evaluating the headline/reputational risk that may accompany a particular investment;
  • Identifying in collaboration with the portfolio company and/or other investors the stakeholders who will influence and have a material impact on the success of a transaction;
  • Understanding how best to reach those stakeholders;
  • Determining the optimal time and sequencing to communicate with those stakeholders; and
  • Devising and implementing a communications program to reach and regularly engage with the stakeholders following the transaction announcement and closing.

 

These communications tips aren’t silver bullets, but they can and should make life easier (and more productive) for private equity firms in these challenging times.