Private equity investors are watching this year’s deal environment cautiously and should prepare to carefully consider their communications strategy as they operate. With market volatility expected to continue playing out through 2023, and with high interest rates making dealmakers skittish about the additional adverse impact to the deal environment later this year, PE firms need to be especially conscious about the messaging they want to put forth to the market and current LPs.
Investors may be understandably hesitant to put forth new capital, which may frustrate firms looking to fundraise. Moreover, choppy market conditions and the overhang of recession fears may slow the deployment of the enormous amount of dry powder that the PE community still needs to deploy.
Private Equity Communications Considerations
Buyout shops must think carefully about communicating and explaining their investment thesis to stakeholders. What types of companies do they wish to back in terms of size, sector focus and stage of life? Are they focused on building lower middle market companies into industry leaders, taking large companies private via LBOs, helping family-owned businesses enter the next stage of life? Or are they focused on turnaround situations, rebuilding companies after seismic industry shifts or crisis situations? Each PE firm must deliberately weigh and communicate strategic thinking behind capital deployment, building up portfolio companies, sourcing deals, and creating value for investors.
Firms must also celebrate and display their successes in marketing communications like releases and via media engagements. These victories may include profitable exits, value-added acquisitions, and overall execution of the firm’s investment strategy. This will illustrate and display PE’s relevance in the deal community, the wider marketplace and to business leaders looking to tap the PE industry to grow their companies. Further, buyout shops must display a clear line of sight and strategy around paths to value creation, well-tested methods of sourcing new deals and growing portfolio investments.
PE firms also can’t leave limited partners in the dark. Buyout shops will not serve themselves well if they fail to explain effectively to their investors how they will use capital called, execute on value creation, and deliver a reasonable ROI. Is their PE shop building a company in a mature sector via organic growth or via bolt-ons, increasing risk and holding the company over a longer period? Or is the shop engaging in shorter term, more complicated deal structures? You must communicate the merits of each approach to all stakeholders—employees, investors, portfolio companies, and the broader marketplace—so that everyone is on the same page and agrees on the strategy.