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Rebranding as a Private Equity Value Driver

Financial sponsors should answer these nine questions when deciding whether to undertake a rebranding effort for their portfolio companies.

Rebranding as a Private Equity Value Driver

Private equity firms use a broad array of growth- and profitability-focused strategies to create value within their portfolio companies. Growth-focused strategies may involve making bolt-on acquisitions, entering higher-growth end markets, enhancing sales and distribution networks, and expanding into complementary adjacent product lines. Profitability-focused strategies often involve increasing EBITDA margins by reducing redundancies and workforces, streamlining operations, restructuring debt, and eliminating less-profitable business lines.

Often these strategies result in the portfolio company being transformed during the financial sponsor’s holding period. While the portfolio company’s financial performance ultimately tells the story of the effectiveness of the transformation, it is important for the company’s branding to reflect this transformation as well—both to the company’s target markets and to future potential acquirers.

Financial sponsors should view rebranding as an additional strategy to unlock value within their portfolio companies. Rebranding—the process of strategically updating a company’s positioning, customer promise and experience, messaging, visual identity and marketing—can be a force multiplier that accelerates the returns generated by growth- and profitability-focused efforts. A successful rebranding can deliver enterprise-wide benefits, including a clearer presentation of the business proposition, support for growth into new business categories, and employee alignment behind a common service promise.

Rebranding, however, is not as simple as creating a new logo and website. It requires diving deep into the company’s values, differentiators, market positioning and strategic advantages. As such, the owners and management team need to be committed to the undertaking, and the team needs to embrace the business case for how rebranding will enhance the financial sponsor’s return on investment.

“While the portfolio company’s financial performance ultimately tells the story of the effectiveness of the transformation, it is important for the company’s branding to reflect this transformation as well.”

Nine Questions to Answer When Building Your Rebranding Business Case

Based on more than three decades of rebranding experience, we have identified nine questions companies must answer when determining whether they should undertake a rebranding effort:

  1. What problems are we trying to solve? The starting point is identifying and gaining consensus around the major challenges that the business is facing. Then consider how the current brand contributes to those challenges and how a revamped brand can be part of the solution.
  2. What has changed that requires us to rebrand? You should approach this question from two perspectives. First, identify the changes related to the competitive landscape, technology, regulatory environment or customer preferences that are affecting your business. A SWOT (strengths, weaknesses, opportunities, threats) analysis can be helpful in identifying these forces. Second, think about the changes that are related to the growth- and profitability-focused strategies that you will be implementing.
  3. What goals does our strategic plan identify that the current brand will not support in our customers’ minds? Think about the vision you have for the future of the company and then identify ways in which the current brand does not align with that vision. These discrepancies can be significant in situations where the company is expanding into new end markets, trying to move “upstream” or “downstream,” or adding new capabilities.
  4. How does our current brand limit business growth? This is where the heavy qualitative and quantitative research comes into play. You want to interview customers, employees, suppliers and other stakeholders to create a baseline understanding of how well your current brand supports the company’s financial performance. You also want to ask questions about how being tethered to the current brand limits the company’s ability to execute the new vision.
  5. What do we expect from the rebranding? Articulate and quantify the benefits that an updated brand can deliver. These benefits can take many different forms, including stronger revenue growth rates in new markets, higher employee engagement and lower turnover, reduced customer acquisition costs and improved cross-selling opportunities. Whatever benefits you expect to receive from the rebranding, it is important to be realistic and specific in identifying the expected outcomes.
  6. What resources are required for rebranding? Completing a rebrand is a significant investment. You will want to identify the internal and external resources needed to develop and implement the new brand. In addition to budgeting for the financial cost of the project, you also want to think about the time and energy that will be required from the management team and other key employees throughout the company.
  7. What timeline should the rebranding follow? A well-orchestrated, strategic rebranding campaign typically takes 12-18 months from initial discussion to launch. As you think about your exit strategy for the company, begin the rebranding effort early enough so that the benefits will have begun to take hold before you start talking to potential acquirers.
  8. Are we “ready” for the commitment? Effective rebranding requires a significant investment in terms of time, energy and financial resources at multiple levels of the organization. Talk with the executive, marketing and HR teams to determine if your employees are ready to commit to the process.
  9. What will happen if we don’t rebrand? Finally, it is important to realize that there is a cost to not Think about what the business performance would look like five years from now under the existing brand and perform a risk assessment of the status quo.

As a financial sponsor, your firm has already made an enormous investment in your portfolio companies—both in terms of the capital used to acquire the company and the effort you have put into implementing your strategic plan. Rebranding can be a powerful way to further leverage these efforts and enhance your fund’s return on investment. While rebranding may not be necessary for all of your portfolio companies, there is a strong business case to be made for rebranding the companies that are undergoing a significant transformation.

Jim Heininger

Jim Heininger is founder and principal of The Rebranding Experts and Dixon|James Communications.