Private Equity Firms Overlook Some Basics – Parts II and III

If, on average, only 30% of companies bought or invested in by private equity firms achieve the success the PE company envisioned when the investment was made, one has to wonder why those firms spend little or no time and effort trying to increase the sales of their new purchase through better marketing strategies.

Several of the firms I have spoken with, and assorted analyst friends, agree that actively including marketing in the strategic growth plans for the company is gaining in importance. The days of "standard" business and financial re-engineering are evolving to include all tools, especially as we move from a product to a service economy.

In today’s world….well, yesterday’s world given the state of the market now….money was available everywhere. And sought-after companies that needed cash infusions or wanted to enact their ownership-retirement exit strategy, knew they had plenty of suitors, and would negotiate the best deal possible for them, and what they believed would be best for their company.

Yet strategies for improving the marketing and sales operations rarely were put on the table. Fundamentally, these functions have not been a strength of PE companies, so they would leave those elements of growth to the invested-in company, more often that not, in "hands-off" mode.

That strategy needs to change.

PE companies need to bring on board a Chief Marketing Officer or "in-house agency of record" for its entire portfolio – or 1 for each sector – that knows how to build revenue, and can provide more than arms-length support.

Because, net net, if a primary barometer for increasing the value of a company is increased revenue, then there needs to be more emphasis on sales growth.

Part III: Putting The Strategy To Work

So… we’ve set forth the proposition that only 30% of PE deals are successful, that marketing and sales development is not a core competency of PE companies, and that including this as a value-building strategy can impact the bottom line.

Let’s talk about how to enact that strategy.

Many undervalued companies being acquired are undervalued because they have been operating the same way for years, and change begets process efficiencies and revenue opportunities. But marketing to prospective customers has changed dramatically in the last 5 years (it changes, in fact, just about every 18-24 months) and an experienced agency can make a critical difference in the bottom line.

How? Easily. Define the true value proposition of that company. Analyze the current and potential customer base for trends and purchase dynamics. Segment the competition, find weaknesses, and out-position them by producing better products, services and marketing materials that sell, not tell. Utilize new media. Actively engage the customer beyond sales calls and trade shows.

What many companies also don’t readily recognize is that the workforce is getting younger. And smarter about how they buy products and services. The proverbial "old boy / sales are built on wining and dining" process is almost dead. So much is done on the Internet – especially the initial researching of a company before the first sales meeting – yet so many companies’ web sites, particularly in manufacturing, reek of that stale intellect.

On the Internet, your process is your brand. Period. If you have a site that is difficult to navigate, then it stands to reason that the message you are putting out there is that your company will be difficult or cumbersome to work with. Can’t even make your site organized and process-driven, with a main selling proposition? Then you probably aren’t as smart as the person viewing it.

Hiring an agency to act as an in-house arm or advisor, or a CMO, to help differentiate a company and/or its products and services from all others makes real sense, and would have an impact on bottom line revenue.

If the PE goal is to increase the value of an asset, and sell at a profit or take public, why not focus on taking a more active role to increase revenues, instead of focusing on creating efficiencies and guiding business strategy.

I realize that there is much more involved in PE deals and their value-development strategies, but this is a strategy that smart PE companies that "get it" recognize, and are bringing into the mix.





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