Why do Private Equity firms ignore the role of brand in creating value?

This is the question that’s been keeping me up at night. I’m slightly scared to ask it publicly, but I’m genuinely struggling to answer it.

If the investment community (and by that I generally mean Private Equity) understand value; then why don’t they understand the role brand plays in creating it?
 

At the core of our work as brand consultants much of what we do is focused on helping our client base drive value for their brand. This all comes together into a brand strategy that’s designed to complement the corporate strategy, with a focus on value. We firmly believe that brand strategy is business strategy. (Note: I’m speaking primarily from a B2B perspective as that’s where most of our experience lies).
 

The thing is, the wider business community does seem to appreciate that brand is an asset. And just like any asset, if you nurture and invest in it, it will deliver you a return in the long term.
 

I’ve written lots of stuff on why it’s important for business to develop a serious brand strategy – that it’s about more than just logos and colours – which provides a structured approach to managing brands. My own definition of what a brand strategy should do is as follows:
 

“A good brand strategy manages the inter relationships between products, services and the corporate entity, organising and presenting them in such a way as to minimise confusion for customers on their path to purchase”.
 

In the last decade, I can name only one client who proactively decided to set a brand/portfolio evolution review and strategy in place as a form of due diligence before going to market. They eventually sold for a multiple that far exceeded their initial expectation (well into the hundreds of millions of dollars) and I’m not naïve enough to believe that this happened because of the brand. But the client remarked that the work around the main brand, architecture and conventions contributed significantly to the value achieved by making them easy to understand and buy. This has stuck with me.
 

So, I’m beginning to wonder if the basic understanding of brand that exists in the general business community hasn’t yet filtered through to the investment community. And I say this for two main reasons:
 

1: Our own experience bears this out.

Over the past decade or so, we’ve been hired to work on at least 10 significant projects that have been backed with Private Equity money. That’s great, but the challenge is that we seem to be unable to do the work that really needs done. It’s either too late in the process or the scope’s not wide enough to tackle the underlying issues. Typically, the business is undergoing some rapid growth through acquisition which is growing both top and bottom lines. But this growth strategy also adds layer upon layer of complexity for the business in being able to tell its story and showcase its now burgeoning and likely overlapping product portfolio. Like a balloon filling up with air, it eventually reaches a stress point and bursts. When sales teams are unable to navigate their own product offerings; it’s a fair to say that the customer’s got no hope – so they’ll go elsewhere where it’s just easier. At this point there may be a recognition in the business that they might need some specialist help, but it’s always after the fact, never before and brand just isn’t seen as a mitigating force in this dynamic. In this sense we always seem to end up treating the symptoms, fighting a rear-guard action to bring coherence and clarity on the hoof, rather than setting up a playbook to deal with the cause.
 

2. The PE Community don’t talk about brand.

We looked at some of the top investment companies in the world and dug into their websites to see if any of them highlighted the role of brand in their investment strategies. Or if anyone had written any content about how brand contributes to creating business value in any way shape or form.
 

Nothing.
 

Well, there were a couple of articles about how important brand value is and the term ‘brand’ is used widely as a shorthand to refer to a specific business. But nobody seems to be talking about it in a strategic sense as a lever to unlock value.
 

The thing that hits you when you tour through these websites is the sense of power, scale and certainty these businesses have in their ability to create value through investment. It’s quite intimidating – as if you’re entering a club but lacking the requisite knowledge to evaluate whether they’re any good or not. There’s a ton of jargon, diagrams and flow charts that highlight top level process and approach, so it’s difficult to break things down into any detail. On a couple of occasions, you can see how brand may be buried in a ‘go to market plan’ or as part of ‘strategic realignment’ within a business model, so it may be there at a more granular level, but it’s certainly not called out as a thing. This contrasts with subjects like ESG or Digitalisation which both feature prominently across all sites. They’re both familiar and current and have created a lot of noise in the business and investment worlds; so, it’s perhaps not a surprise to see them there. But there does seem to be a disproportionate amount of content and space afforded to them. Maybe they’re just fashionable buzzwords in this industry too?


My question is WHY NOT?

So why doesn’t brand have a higher profile and the recognition it surely deserves in creating value within the investment community? Both my professional experience and topline research suggest it’s overlooked, ignored, or misunderstood.
 

This has been rattling round my head for a while now and it’s become a bit of a recurring conversation with colleagues on planes and trains after meetings. We haven’t solved anything, but they have advanced several working hypotheses that attempt to explain the absence of ‘brand’ knowledge within the investment community.
 

1.    It’s not understood.

So, one conclusion is that brand is just not understood properly. As an industry we’re our own worst enemy at trying to explain why a business should invest in brand. We already know there’s a dearth of marketing representation at board level, and it’s probably madness to expect it to be anything different for brand. Makes sense if you think about it – these people are financiers who are grounded in the real world of spreadsheets and numbers; not in the ethereal world of brand which is prone to trends and fads and lacks accountability.
 

2.    It's misdiagnosed.

Sometimes the brand challenges faced by acquisitive businesses are bundled together under comms and messaging. That’s fine, but only partially addresses the problem, treating the symptom not necessarily the cause. But given point one above, this is understandable.
 

3.    The return cycle is too long.

We’ve debated this one a lot and it’s been validated in some of the client conversations we’ve had on the matter. The bottom line here is that some brand solutions require fundamental engineering of architectures and product portfolios, which is quite a big task. The investment mindset might be that the time for the changes to be implemented and take effect will be longer than the total investment. I think this is a possibility; but it presupposes a level of brand knowledge, which I’m a little bit more sceptical about.
 

4.    They don’t care.

Probably closely linked to the point above, it may be that the perception is it’s too much hassle for too little return, so let’s just leave it. It can be someone else’s problem later. For me, this one feels like it might be close to the truth.
 

I’m fully prepared to be told that I’m idealistic, naïve, or just plain wrong, but I have a genuine curiosity as to why the concept of brand seems to be overlooked when investment decisions are made. 
 

Considering brand as a distinct part of the growth playbook will create significant value further down the line. It’s about identifying the opportunities early and planning. I accept that it might not be relevant for every transaction; but I’m confident enough to say that if the investment’s funding an acquisition strategy; then at some point in the journey, brand’s going play a role. After all, like we said, brand strategy is business strategy.
 

I’d love to know what those in the investment community think. Does brand and strategy play a role in adding value as part of the investment? Is it just too much hassle? Am I missing something?