It’s widely acknowledged in PE that the foundational requirement of risk mitigation is ingrained in every facet of the deal evaluation process. From market assessment and human capital to environmental impact studies and deal structuring, the minimization of risk defines and drives deal interest and ultimate decision making.
Furthermore, once a deal is finalized and a 180-day plan is rolled out, priorities such as installing a CFO or a new CEO, upgrading software and systems, and implementing lean initiatives are often at the top of the list.
However among these priorities in deal evaluation and operational implementation, the impact of smart, proactive brand management on value creation and ultimately the potential upside of a deal is often overlooked. Brand is seen purely through the prism of sales enablement benefits.
In MonogramGroup’s extensive experience working with portfolio companies, we’ve seen that brand impact transcends sales enablement or messaging to investors. What may be inadvertently downplayed is brand management’s importance in integration of add-ons, attracting new sellers to the platform, talent recruitment across the platform, and the creation of a tangible asset that can drive multiples up.
In other words, a thoughtful brand strategy and executional plan can serve as a strategic lever for both mitigating risks and unlocking value creation.
Downside: Brand as a Risk Mitigation Driver
For a variety of reasons (both true and untrue) the reputation of private equity can be spotty at best, creating fear and uncertainty – even animosity – among key internal and external constituencies after a sale closes.
Among staff the questions can be immediate:
Will I lose my job? Will they cut costs everywhere just to increase profits? How much transition will I have to absorb when I’m just trying to do my job? Will they invest where we need it?
Among loyal customers and suppliers, there can be equal concerns:
Will they raise prices or change terms? Will they shop new suppliers to cut costs or consolidate across a wider geography? Will competitors increase attacks using PE ownership as a wedge?
A thoughtful, proactive brand messaging plan that emphasizes a benefit orientation can impact customer retention, supplier relationships, and overall market perception both in the short-term and long-term.
This is the overlooked dual benefit of brand consideration early in an investment – it isn’t just about expanding the customer base, it’s about retaining and growing the loyal customers that made the company an attractive acquisition target in the first place.
Upside: Brand as an Integration Accelerator
Integration of disparate and dispersed companies is messy at best, painful, and prolonged at worst – which is to be expected. Egos and legacies are involved, as are processes, systems, suppliers, and more. For many deals to realize their full potential, integration is a requirement.
Often the preferred strategy is to simply create a holdco, letting the local acquisitions be as they are – perhaps the path of least resistance. There’s nothing wrong with that, but it may not be the only (or best) path. For one, it does not lend itself to cohesion based on a shared mission or the development of shared knowledge and processes. At its worst, It is passive and may sell short the platform’s value at exit.
Upside: Brand as an Incentive for the Next Add-on
A cohesive brand message can also lend itself to attracting future add-on acquisitions to the platform. When the successful integration of past acquisitions has been demonstrated, it will act to alleviate concerns of leadership at a prospective seller. They can move ahead with assurance in the knowledge they are joining a market leader, adopting best practices in every facet of sales and operations, and not leaving their staff at risk while in the pursuit of personal financial gain.
This is even more critical in sectors where there are multiple PE roll-ups happening at the same time, and it becomes a choice for each seller to consider which aggregator is the best for their needs and priorities.
Upside: Brand as a Talent Advantage
In today’s fiercely competitive landscape, attracting and retaining top talent is more challenging than ever. Investment theses often emphasize the importance of recruiting high-caliber executive leaders to drive outcomes, as well as developing a robust pipeline of frontline personnel to fuel aggressive growth. A cohesive brand narrative that leans into employee benefits, combined with a market-leading creative presence, acts as a strong qualifier for attracting talent at all levels.
In addition, as platforms integrate rapidly through add-on acquisitions, a thoughtful, clear, and compelling brand message, regardless of the chosen brand architecture and executional plan, becomes essential to serve as a unifying force for legacy staff and new recruits across the evolving footprint now operating as one.
Upside: Brand as an EBITDA Multiplier at Exit
There is strong evidence that a clearly defined brand strategy and well-executed brand infrastructure and content program is often valued as a tangible asset by the acquiring sponsor – no different than contracts, inventory, or warehouses.
In addition, a repeatable process for sunsetting or harmonizing add-on brands can be leveraged for continued growth of the business long after the first sponsor has exited the deal. The added dimensions of brand as an attractive element to continue scaling the enterprise with future acquisitions and new talent underscores this premise.
Furthermore, when weighing the real cost of investing in brand vs. other key growth drivers (e.g., new facilities, software systems, etc.), we can argue that the likely ROI for brand is as great or greater than other commonly deployed uses of capital and time.
Long-term Upside: Brand as a Differentiating Factor Among Investors
Perhaps the most overlooked benefit creator and risk mitigation consideration of brand is as a differentiator at the sponsor level. Most firms deeply understand the challenges of distinguishing themselves amidst a highly crowded pool of options for institutional investors, choosing to highlight fund results and other financial metrics to pitch their best story.
But which ones truly have aspects of a differentiating strategy?
By recognizing and embracing brand’s dual role as both a catalyst for growth and a defense against risk – and sharing this perspective to potential investors – sponsors stand to gain a small but meaningful competitive edge in fundraising.
The value proposition of engaging MonogramGroup to address brand early in an investment transcends superficial enhancements. It becomes a cornerstone of strategy, no different than getting the right CEO and applying lean principles to manufacturing. As PE firms strive to execute their investment thesis into each portco, harnessing the potential of branding emerges not as an option but as a smart, requisite strategy.
Learn more about how brand impacted the sale price of Center Oak’s portfolio company, SurfacePrep, by reading here. Learn more about the SurfacePrep case study here.