After a decade of remarkable growth, the private equity industry is now consolidating amid fundraising challenges and intense competition for portfolio deals. As a result, communications is increasingly important as PE firms navigate complexities of dealmaking that go beyond financial and operational considerations.
PE historically has shied away from consolidation due to concerns about integration, including culture clashes, executive compensation, and performance fees. Many firms also still prefer a low-profile approach to communications, passing by the opportunity to shape public perception and enhance brand value. This new round of mergers and acquisitions, however, underscores how effective communications can play a crucial role in building trust, managing expectations, and aligning stakeholders – from LPs to employees. Some of these strategies may be table stakes for public firms but are new ground for many PE groups.
Whether acquiring or being acquired, PE firms should consider the following:
Remember the Portfolio: In the context of PE M&A, the impact of the transaction extends beyond the two merging GPs. The respective portfolio companies, including their executives, employees, customers, and vendors, need clarity on how the transaction will affect the business. Communications teams should take a proactive approach in guiding portfolio companies through this process, ensuring that the companies understand not only the strategic rationale behind the transaction but most importantly, the implications it carries for operations, ownership structure, governance, and overall business trajectory.
To help alleviate uncertainty among portfolio companies impacted by a change in ownership, consider holding an employee town hall to address emerging questions. For transformative transactions, it may make sense to set up a microsite on the company intranet with resources for management and employees (e.g., FAQs, contact sheets, org charts, integration timelines, etc.). At the same time, tailor communications strategies for specific portfolio companies. Executives may need detailed strategic insights, while front-line employees may require more practical and day-to-day operational implications.
Remember, PE firms have an extensive and varied network of stakeholders, and it is critical to weave a cohesive narrative that addresses the interests of each type of party. By providing clear guidance and fostering transparent communication, communications teams help align portfolio companies' interests with the objectives of the transaction, promoting a smoother integration process and setting them up for long-term success.
- Foster Investor Confidence: It's crucial to consider the implications for existing LPs who will want to assess the potential impact on their partnership agreements and investments. While all funds have unique agreements specifying terms related to selling all or part of the company's stake, investors will need to be informed of any changes in investment strategy and/or management resulting from the transaction. While some of this information will be communicated in the deal announcement press release, the investor relations team should be supplied with a comprehensive set of FAQs and talking points to help ensure information is communicated accurately and consistently. Regular communication and transparency will build trust and confidence, assuring investors that their interests and concerns are taken into account.
- Recognize the Importance of Cultural Alignment: PE firms have traditionally approached the prospect of acquiring their own with caution, in part due to cultural challenges. Stories about leadership clashes, compensation disputes, and talent retention have cast a shadow on the outcome of such consolidation. In light of the negative perceptions surrounding culture clashes in PE, it is imperative to adopt a proactive stance in communicating the message of cultural alignment to help support a successful integration. To achieve this, it is essential to communicate your culture story effectively. From the investment team to the operating partners, the messaging for each stakeholder group should be tailored in a way that alleviates any potential concerns and instills confidence in the partnership. Address those concerns directly when appropriate. Both internal and external talking points should emphasize shared values and goals, highlighting the positive aspects of each firm’s culture. Additionally, create a platform for employees to ask questions and voice their opinions. Regularly updating them on the progress of cultural alignment initiatives ensures they feel heard and valued throughout the process.
- Embrace Strategic Media Engagement: Many PE firms have steered clear of the media for years, but this is the time to re-think that philosophy and promote a cohesive culture and strategic narrative with reporters. Consider scheduling media background meetings with leadership from both sides, not just on day one but also following the first year. Explain the rationale of the deal and specify the ways that it will help your investment strategy. And don’t just wing it – significant preparation will be important, especially if you haven’t previously engaged with reporters. If you are acquiring a specialist firm, such as a secondaries firm, position your new business heads as articulate spokespersons aligned with your messaging. They can play a pivotal role in solidifying your brand as the diversified asset manager you aspired to be with this acquisition. This can also be the start of forming a relationship with reporters that may be useful in the future.
Amidst the ongoing uncertainties surrounding the industry's trajectory, one thing remains clear: in a climate characterized by economic unpredictability and heightened competition for capital, PE firms must bolster their communication efforts to ensure their stakeholders understand their strategy. In an industry where reputation and trust are paramount, effective communication can make all the difference.
Alyssa Noud, Vice President, alyssa.noud@edelmansmithfield.com