Greenbrook’s Andrew Honnor explains how a thoughtful communications strategy can help private equity managers to protect hard-won reputations and create value.

In what ways can communications firms help businesses manage risk?

It is important for all organisations, especially investment firms, to clearly explain what they are doing and why, to ensure the broadest understanding amongst their stakeholders.

A well-executed communications strategy can help private equity firms and their portfolio companies pre-empt and manage reputational risk. This does not just involve managing a crisis when it occurs, it is also about building a strong reputation during the good times, as this can serve as a protective barrier against issues; help a firm stand out from the competition; and earn a license to operate that greases the wheels of normal everyday business.

In the highly competitive world of private equity, a communications strategy that is focused on achieving specific business objectives and a strong reputation can be the difference between long-term success and failure.

What are the challenges communications advisors face in working with private equity?

The key challenge for communications advisors to private equity firms is being able to offer a combination of technical investment knowledge and communications skills. To achieve this means being a specialist, because advising private equity firms is very different to normal corporate communications. We are often embedded within the GPs we work with and are dealing with the principals of the business, so it is vital to be able to immediately understand what is going on, quickly unpick the issues, and give advice that is underpinned by a strong technical understanding. By focusing on advising private capital investment firms we are able to live and breathe the details, really understand the space, and give clients the specialist advice they need.

Historically, alternative investment firms were far less aware of the advantages of receiving professional communications advice; however, that has now radically changed and the role that communications can play as a value driver at both private equity firms and their portfolio companies is now properly understood. GPs are increasingly sophisticated across the entire size spectrum and communications increasingly plays a role throughout the entire private equity investment cycle, supporting fundraising and IR efforts; capital deployment; value creation; managing issues; and the exit process. 

How often do firms hit problems?

It is likely that any private equity firm, no matter how successful, will experience some sort of problem over its lifespan, due to the fact that they can have exposure to a wide range of companies, sectors and geographies. The reality is that much of our issues management work is preparing for scenarios that are ultimately either resolved, or do not escalate, because our threshold for what constitutes a ‘problem’ is very low and our motto is to prepare for the worst, but hope for the best.

The issues a private equity firm could potentially face are varied, ranging from financial and operational restructurings; problematic fundraising processes; performance issues; the need to manage change at portfolio companies; succession processes; to legal disputes and more. All of these situations can appear quickly, so it is important to have the resource available to help prepare for different eventualities and properly manage the situation before it becomes a serious reputational issues or, worse still, become an existential crisis.

While it is impossible to predict when issues may arise, the reality is that by being a specialist and having advised so many GPs it is rare that one of our clients would experience an issue we haven’t faced previously.

What kind of company/business/sector is most at risk?

Private equity is no different from other parts of the financial and corporate world, in that it is affected by the same trends – for example, right now that most obviously relates to the uncertainty generated by the political environment. That said, there are certain sectors in which private equity firms invest that are more likely to attract attention than others; retailers and consumer goods makers – anything that has a well-known brand, for example - as well as businesses such as care homes, which look after the most vulnerable members of society.

For the GPs themselves, the most at risk are those that have failed to innovate and offer investors and the portfolio companies that they partner with a truly differentiated approach. The highly competitive market for private equity investment means that those that have not embraced new ways of working, new technologies, and cannot articulate a clear reason to exist will find themselves no longer relevant in time.

In a crisis, what steps can you take to protect the value? 

While every situation is unique, the key principles are to build a strong reputation ahead of any crisis and to carefully prepare for different scenarios so that the right actions can be taken quickly and calmly. It is not always possible to foresee crises before they arise, but that doesn’t mean you cannot be ready when they occur.

Organisations should develop a clear protocol and identify a small team of senior individuals, alongside dedicated advisors with the appropriate specialist skills, so that decisions can be made quickly. Responses and relevant protocols can be laid out and rehearsed so they are in place in case they are needed. Far better to have the most probable potential scenarios mapped out and planned for and then not need to act, than to need them without having done the preparation.

How would you characterise your relationships with clients?

The most effective client-advisor relationships are those based upon trust, which is built up over time by consistently giving good advice, showing technical understanding and ultimately demonstrating value. The client relationship with private equity firms can be very strong because typically the relationship is with the partners of the business and we are integrated as part of our clients’ own teams. This means that the senior people within private equity firms can really feel the benefit of our advice, and should there be an issue we stand side-by-side to manage the problem.

Has the role of communications in private equity changed?

The role of communications has changed immeasurably over the past few years, particularly in the decade since the financial crisis. Prior to this, many PE firms felt they did not have to bother with communications, but that has changed as the sector has matured. The increased profile of PE investment firms has gone hand-in-hand with a greater understanding and appreciation of the value that can be generated via professional communications. Previously, it was largely the case that if communications served any role, it was simply to promote a new deal or, at a pinch, a successful fundraising. These days, throughout the investment cycle communications professionals are seen as a real value driver.

How can firms better protect their reputation and value?

It is inevitable that firms will experience difficult issues at some stage, whether at the GP, fund level, or with a portfolio company. It is important, therefore, to have in place an ongoing communications strategy to ensure the firm is properly understood and has the right relationships in place so that it can best ensure it will be heard when things do, unfortunately, go wrong. It would be naïve to pretend that a sensible communications strategy can always prevent bad things from happening, but it should ensure that when a crisis arises, it can be navigated successfully.