Despite our frequent and earnest urging, PE investors don’t typically buy companies to pour money into their brand fundamentals.
The word “brand” doesn’t come up much in a due diligence process focused on quality of earnings, cost structures, supply chains and pricing strategy. Perhaps it should, and we’ve made the case for that elsewhere.
But there are other times in the lifecycle of an ownership investment when brand should be considered as a powerful lever for creating value.
1. Immediately following acquisition.
This is a natural time of change: customers, suppliers and employees are looking for signals of what’s to come. Putting a finer point on positioning demonstrates confidence in the business and projects a vision for its future. Investment they can see and feel is reassuring. It inspires belief. And it dispels concerns that “PE-backed” is synonymous with cut costs and reduced service levels.
When the acquisition is a strategic one, complementary (or even competitive) brands in the portfolio might now overlap. This could be the moment to consolidate into a single brand of strength, projecting scale and changing the competitive landscape to your advantage. It also creates efficiency: supporting multiple brands can be costly over time.
A compelling brand story arms sales leaders and teams with near-term focus and helps address customer concerns. A strategically sound, highly visible brand gives them long-term air support as business cycles flux and competitive dynamics shift.
In B2B environments in particular, competing on price and product features is a race to the bottom. Establishing a strong brand with a clear proposition creates distinction and fosters credibility. It enables higher-order conversations about customers’ business goals and moves you up the chain from “one of many suppliers” to “integral strategic partner.”
Strengthening the brand at the outset of ownership also offers the longest time period to reap the benefits of the investment.
2. Investing to grow in response to market dynamics.
Sometimes it’s viewed as too disruptive to make major brand changes in the immediate wake of an ownership change.
Deferring the investment gives the operating team a better understanding of the company’s strengths, weaknesses and aspirations, putting them in a better position to inform the brand’s trajectory.
Elevating the brand — and with it, the company’s stature — at this stage is a way to expand and protect margins. Respected brands can charge more. Trusted brands are better able to secure long-term contracts and more favorable terms.
While at this stage the time to reap the benefits of an investment in brand shortens, having a clearer picture of the market enables decisions about the brand that can help the business thrive.
3. When preparing for exit or IPO.
Some buyers look for a house to fix up. Others will gladly pay a premium for one that’s move-in ready. For the latter buyer, a thoughtfully polished brand is the fully equipped chef’s kitchen they’re looking for.
The financial and operational infrastructure is there. It fits with their investment criteria. But, all things being equal, so do a lot of companies.
A strong brand — even if it was rehabbed with the intent to sell — helps command a better multiple than a dusty fixer-upper.
TLDR:
The right time to invest in a portfolio company's brand is probably closer than you think.
INDELIBLY YOURS,
Mike Walsh
About the Author
Mike Walsh has helped build enduring brands for GE, Oshkosh, AT&T, Curia, Anheuser-Busch, CardX, Molson Coors and Motorola Solutions. In his 20’s Mike bowled in all 50 states, a journey published by St. Martin’s Press and hailed as the world’s best bowling-themed travel memoir.
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