Going public

As the private equity market heats up, the firms once shrouded in secrecy are beginning to make themselves heard.

As the private equity market heats up, the firms once shrouded in secrecy are beginning to make themselves heard.

Last year was a landmark one for private equity (PE) firms. They gained billions in capital from eager investors. They joined forces on huge buyouts of companies that would once have not been considered in play, like the $33 billion deal for Hospital Corporation of America. And they raised speculation - grounded or not - that the $100 billion buyout is not too far away.

With the wild waves of capital washing over the PE world came two distinct phenomena: more competition and more coverage. The rush to get into the once-arcane business has pushed the total buying power of private equity firms to more than $2 trillion, according to The New York Times. Figures like that raise interest everywhere, and the sheer volume of media coverage of the PE industry has made strategic communications an accepted necessity among most large firms - many of which did not even have Web sites until they absolutely had to.

But the opportunities for PR agencies to grab a small chunk of PE's expanding profits are clearly growing. Firms that once didn't need much more than a press release to announce a deal are now turning to professional communicators for everything from crisis management to labor relations. And if the current boom continues - as most predict it will - PE firms may soon rival much better-known brands in communications savvy.

"Today, more than ever, virtually every private equity firm is concerned about brand power," says Kekst & Company founding partner Jeffrey Taufield, who handles several major PE clients.

That brand power, he says, helps PE firms raise capital from investors, hire and retain the best talent, increase their deal flow, gain approval of transactions in regulated industries, and maintain good relations with boards of directors and management teams at the companies the firm either has acquired, or seeks to acquire.

"Engaging a PR firm used to be an option," Taufield says. "Today, it's an imperative."

Communications on behalf of PE firms and their slightly more stable cousins, hedge funds, broadly fall into two categories: strictly M&A-related communications, which deal with a mostly formulaic list of tasks necessary to making a transaction run smoothly; and more ongoing types of communications programs, which range from b-to-b types of promotional work to a PE firm's constituencies, to thought leadership and strategic media relations.

Though M&A work has been dominated by a relative handful of PR firms with longstanding ties to Wall Street, the search for bigger deals has thrown a new twist in their jobs.

Teaming up

"Club deals," when two or more PE firms team up to buy a large company, are becoming more common. That means that the communications for such deals - which often draw intense media scrutiny - are becoming more complicated.

"You're not only representing the interests of one investor, you are also representing the interests of a consortium," explains Taufield. With every player in a large deal bringing its own PR firm to the table, coordination is important.

"Beyond the fact that there are many more deals being done and many more funds, there are equally many more situations where these funds team up," says Alex Stanton, CEO of Stanton Crenshaw, who represents private equity clients including Bain Capital. "That's a function of the size of the deal. That has communications implications...It's a more complex coordination process."

Insiders say that in some deals, one particular PR firm - often the agency representing the largest investor - will lead the consortium. Other times, there will be no designated leader, and all of the participating agencies must coordinate messaging and execution among themselves.

Dealing with the media, whether to describe the rationale for a financial move or to participate in a profile, has always been a thorny issue for PE firms. Many of the industry's heavyweights are famously press-shy, reasoning that the glare of the spotlight can bring them little business benefit. But now, that attitude is widely recognized as untenable.

"You've got an exploding collection of media covering it, both here and around the globe," Stanton says. "Private equity has become much more public than certainly some of the firms and individuals would like."

That grudging nod to media ubiquity still often takes the form of a polite "no comment" in response to most questions. But now, a professional communicator is often the one shutting the door, to the extent possible. Hollis Rafkin-Sax, vice chairman of Financial Dynamics, recalls an early PE client who started his own firm with his own money.

"His greatest challenge was keeping his name out of the newspaper," she recalls. "For business reasons he didn't want anybody following it because [he] didn't want to tip off anyone else in the market. [But] now that [his firm] has become much more institutionalized... [silence] is not an option any more."

Comms benefits

While Rafkin-Sax does eschew "publicity for publicity's sake" in the PE world, she points out that clients are sophisticated enough to grasp the obvious benefits of planned communications. Outside of building prestige to attract employees and investors, the ability to manage financial contacts skillfully is a key tool for PE firms tapping into the latest business intelligence early enough to be able to profit from it.

"They want to drive access to the deal flow," she says. "Having some sort of proprietary network and being able to build on that is critical."

Another hard fact that has driven PE firms to further embrace PR counsel is the brooding feeling among political leaders that private equity has gained too much power, and thus needs to be regulated more heavily. The industry's first-ever trade group, the Private Equity Council, is set to be launched soon and is likely to be a hefty source of lobbying and public affairs work.

"Inevitably," Kekst's Taufield says, "we believe private equity communications will become as sophisticated, if not more so, than many of the programs we see today in corporate America."

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