Why investor-backed high growth businesses need a different approach to strategic communications and ESG

Private equity often buys businesses with a view to rapid buy and build expansion, increasing revenues and building a much larger business that can achieve high returns.

A different approach

The trajectory of such businesses requires a different approach to strategic communications and ESG (environmental, social and governance issues), compared to companies engaged on steadier organic growth in less dynamic environments.

Their communications and ESG strategies need to take account of several key differentiating factors:

  • Entry into new and sometimes unfamiliar geographic and product markets
  • Buying and incorporating or bolting on new businesses
  • Pursuing market leadership strategies
  • Challenging and disrupting mature markets

GK has advised on over 300 private equity deals worth over $14bn and advised many of these assets and their investors across the deal cycle, through to exit.

Our experience is that assets become more resilient to risk and capable of value creation when they invest in strategic communications and ESG .

Entry into new and sometimes unfamiliar geographic and product markets

High growth strategies can take investor-backed businesses into unfamiliar geographic and product markets. This often brings the business into contact with new customer groups, stakeholders and regulatory regimes.

Mapping these new markets – and understanding how best to engage and influence key external stakeholders in them – is essential, especially where the business has little familiarity with the regulatory and political environment.

Consumers in these markets and key external stakeholders (such as regulators and user groups, etc) may also have very different expectations of what a responsible business should be, compared to the markets with which the business is familiar.

This may require a review of existing ESG credentials and communications, to see where there the company is exposed to reputational or operational risk.

Buying and incorporating or bolting on new businesses

For investors acquiring assets with a view to buy and build strategies, – either as relatively standalone businesses or integrating them – this may introduce businesses that have legacy reputation issues that need addressing by their new owners. It is vital that as much of this is picked up in the due diligence process, but a thorough review is necessary once a deal is complete.

And the increase in the operational footprint and number of businesses may put a strain on the capacity of current governance arrangements and senior management oversight to identify reputational, political and regulatory risks that the acquired business may not have been following closely enough. This may require a review of existing messaging and communications, including preparedness for crisis communications.

Pursuing market leadership strategies

Private equity typically buys good businesses with a strong market position and growth potential. But these are sometimes outside the top 3 or 4 companies that dominate and define their sector. They can hence struggle to get their share of voice in their sector, at their trade association, in the media or in policy debates.

Investors should work with management teams to identify key themes that can differentiate them in the marketplace and in the media and policy debates (e.g. innovation or distinctive employment or customer engagement practices).

Customer marketing needs to be augmented by broader corporate communications and engagement – often with audiences that may not be very familiar with the business, such as user or consumer groups or politicians (who may only be familiar with the biggest or worst firms in a sector or prevalent issues).

An executive profiling programme for the CEO, chairman or key board members can also be useful, helping to bring the brand to life and creating opportunities for new voices and policy or sector reform proposals to be heard.

And these programmes need to be underpinned by robust and demonstrable credentials as responsible, responsive and well-run businesses. This may require the development of case studies, new policies and performance indicators that track these commitments.

Challenging and disrupting mature markets

Many of the businesses we have advised are challenging established providers and ways of working through new products and services and sometimes with entirely different business models. But these approaches may not be understood by regulators or politicians or adequately covered by existing regulations.

It is important then to educate these audiences on the benefits and features of these new developments. Often they can only be introduced to the UK (or other jurisdictions) if there is a change in the law, funding or procurement practices. A ‘wait and see’ strategy will not work. Investors should engage early and often with politicians and regulators; this dialogue should be thought of as building up an asset that will pay dividends in the future.

Investor-backed high growth business present their own unique challenges and opportunities – for investors, senior management and existing corporate affairs team. GK can help map these risks and opportunities and help build more resilient organisations, capable of mitigating risk and leveraging the opportunities that new funding and investors bring.

Find out more in our investor services page here.

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