With a rash of private-equity deals going ahead, Ruth Mortimer asks about the industry's own brand image and what it means for marketers hoping to revive flagging marques

 

If you were the person in charge of managing the brand for the private equity industry, it would be a pretty tricky job. After all, when the companies involved are often called charming names by their business peers such as 'corporate rapists' or 'asset strippers', it's a pretty tough sell for any marketer.

 

Despite recent economic fears of a slowdown, private equity has bought into an incredible number of businesses recently, including Hilton hotels, Dunkin' Donuts and MGM. It is becoming clear that buyout firms are growing increasingly brand savvy. They are not just addressing their own tarnished image of cutting costs and selling off assets; they are building the brands of the businesses they buy.

 

The commitment to marketing from the private equity industry spans everything from undertaking risky strategies to increasing the creative budgets. At private-equity owned Burger King, the chief marketing officer was encouraged to sit on the board and embrace innovative, cutting-edge advertising methods (see case study); over at Dunkin' Donuts, the chain has introduced broader food and drinks menus to encourage visitors who want more than a pastry. Dick Boyce, a partner at private equity group TPG Capital, which part-owns Burger King and Neiman Marcus among other companies, remembers buying the motorcycle brand Ducati in 1996. He reveals that far from seeing it as a business where private equity could strip back costs, it was the lure of a languishing brand that drew the investors in.

 

"The Ducati deal was all about the brand story," he argues. "We concluded that the brand was very strong but the company needed to be able to deliver products effectively and on time. The issues we needed to deal with were about the supply chain and order processing. One reason that we knew the brand was so strong was that people were still keen to get their hands on a Ducati despite the scarcity."

 

TPG had bought a 51% stake in Ducati in 1996 for $325m (#163m) and then bought up the remaining portion two years later. It sorted out the operational issues within the business extremely quickly and floated the company in 1999, later selling its stake to allow the company to go private again under Italian ownership.

 

Polishing a tarnished marque
Howard Davidowitz, chairman of retail consultancy and investment banking firm Davidowitz & Associates, says that this type of speedy turnaround is exactly what private equity firms are best at. They can fix operational, service or overspending problems with new management, software or cost-cutting measures. But they cannot revive a business unless the brand is strong enough to warrant it.

 

"Here's what private equity knows - brand equity relates to the value of a business. They're not stupid," says Davidowitz. "This is why they buy tarnished brands."

 

Tim Duffy, the chief executive of ad agency M&C Saatchi, considers that brands and marketing are so important for private equity clients that the business has recently set up a special unit, Accelerator, to serve this market. It initially arose out of some work that the company was doing for furniture group MFI, bought by Merchant Equity Partners in 2006.

 

Duffy says that far from cutting back on marketing and attempting to strip any costs out of the firm, MFI is pushing forward an aggressive plan to build up the company's profile. He argues: "It has created a bit of edge around that brand. The management there is incredibly ambitious as it is restructuring the business; it's putting its money where its mouth is."

 

Duffy says that rather than thinking investors aren't interested in brands, it is all about finding the best ways to work together. He explains that Accelerator aims to create a business that can use the agency's core skills about understanding consumers and creativity and apply it to a time-pressured situation. He adds: "It's a way of being a change agent for companies where speedy returns are more important than a comfortable process."

 

Accelerator is designed to work with private equity clients from the first moments of deal assessment, through the buyout, formulation of the '100-day plan' and right through to when they exit the business. Duffy says that it is up to marketers and agencies to better understand the private equity way of working and help develop a brand strategy suited to it.

 

"These companies are looking to make money but it doesn't follow that they don't care about creating value with the brand. It's hard these days to find deals where you can just reengineer the finance or hive off properties. Now it's about finding ways to get new customers putting money into the brand - just in a certain time frame," he remarks.

 

Duffy also points out that when marketers feel nervous about working to such short-term goals with such a long-term strategy like branding, they should remember that the average tenure of a marketing director (18 months) is lower than that of a private equity involvement (three- to-five years).

 

Good sense and foresight
Don Elgie, group chief executive of marketing services group Creston, says that the Bird's Eye/Iglo frozen-food brand deal from 2006 is another good example of private equity being marketing savvy. The unit's former owner, Unilever, sold it off after raising concerns that frozen foods had fallen out of consumer favour.

 

When Permira bought the brand, it installed former Pepsi UK chief executive Martin Glenn at the helm. Although Glenn is a very competent business man, he is also a man with his eye on marketing and the consumer.

 

TPG's Boyce agrees that installing a brand-conscious chief within a newly-acquired business is something that his company considers to be good sense. He argues: "We've always had a mind on both the top and bottom-line growth in our portfolio. You can imagine the difference it makes on an exit if you have more top-line growth. We hire CEOs with an operational bent but we lean towards someone with a top-line background in product, marketing or innovation. We want someone who's always thinking about the voice of the customer."

 

Morten Lund, founder of venture capital firm LundKenner, says that getting a genuinely committed management with its eye on the brand is vital for investors. One of the original investors in voice-over- internet service Skype, he has recently invested in another telecoms business called United Mobile.

 

"Since technology has become a commodity, it's all about speed and execution," he comments. "And we believe that only people with fire in their eyes generated by a lighted-up brain can make the difference."

 

But if the CEO and management board don't come from an enlightened, marketing-friendly background, is there anything that marketers can do to convince private equity owners of their importance?

 

Davidowitz says that the key to success in a private-equity backed business is good brand measurement techniques. Rather than relying on soft feedback measures, there needs to be evidence that any campaign benefits sales and margins. He adds: "If you can show what you're doing relates to results, you're not going to have a problem."

 

Creston's Elgie and M&C Saatchi's Duffy agree but both point out that all good marketers should be thinking carefully about measurement, even if they do not have money-men with a short time frame in mind behind the business. Working for private equity owners might be a new challenge but it draws on the usual marketing skills.

 

Making an impression
The private equity sector is also learning something itself from the closer relationship with marketers. Many of the investor businesses are starting to think about their own brands. If they are perceived too harshly and gain a reputation for being especially uncharitable, it can put off other investors from working with them.