Private-equity (PE) owners are typically feared and loathed by marketers, yet these supposed bogeymen are increasingly familiar figures in our lives: 3800 British companies are backed by PE, and the value of PE buyouts rose by 23% in the UK last year, to £15.7bn. So, rather than resort to scaremongering, perhaps it’s time for a more constructive approach.
In particular, it strikes me that there are three misconceptions about these so-called "masters of the universe", which deserve to be addressed.
Let’s start with the classic complaint: namely that PE companies are too short-termist. Now, it’s certainly true that their model depends on an exit at some stage. But the most recent figures from Grant Thornton show that the median holding period for a PE investment has increased every year since 2007 and now stands at 4.81 years. When you compare this with the average tenure of a CEO (4.5 years), an ad agency (2.5 years) or a marketing director (two years), it’s hard to make the short-termist accusation stick.
Private equity owners' velocity can be a positive.
It would be more accurate to say that PE owners simply value speed of action: whatever the eventual time frame for divestment, they set a relentless pace that is not to everybody’s taste. But for some of us, this velocity can be a positive, rather than a negative.
The other common charge is that PE owners are simply asset-strippers. A 2010 survey by Brand Learning found that two-thirds of marketers believed that PE firms just don’t get the value of brands. Instead, the argument goes, their focus is on savage cost-cutting. But again, this myth seems past its sell-by-date (if it were ever true).
PE companies understand marketing’s role in generating value and, conversely, appreciate that starving the brand will drastically reduce the exit price achievable. What they do not appreciate is the flim-flam that often replaces rigour in our world. Where they see a precise relationship between brand investment and the bottom line, they are usually very supportive: it is where accountability is absent that they are unforgiving. So perhaps we need to make our commercial case more clearly?
The final accusation is that PE owners interfere too much in operational business. This may be true in some organisations, but rarely where things are going well – not least because this duplicative effort would be highly inefficient.
The more typical model is that the investors back the management team and heavily incentivise them to succeed. No doubt the owners will be demanding and use their broader commercial understanding, gleaned from other markets, to challenge operators and spur them on. But their pressure will be in pursuit of a common goal, to which all are aligned. And at a time when many organisations have very incremental aims, this naked – but shared – ambition can be quite exhilarating.
I’m conscious that I am accentuating the positives and downplaying the challenges, of which there are many. But the latter (where accurate) have been well-aired. In the interests of balance, it’s time we set the stereotype of PE owners as short-termist, asset-stripping meddlers against their potential to be pacey, demanding and empowering.
Marketers wishing to prosper in this environment should ask themselves how their brands might be harnessed to make the company work better and deliver operational efficiencies – as well as, more obviously, how they might generate consumer demand. Beyond this, the best advice is simply to be quick, accountable and ambitious.
There. That doesn’t sound so bad, does it?