For most private-equity sponsors, rebranding a portfolio company isn’t particularly high on the list of priorities. But by punting on a rebrand, sponsors are missing a prime opportunity to capture additional performance and value. Done properly, the recasting of a company’s brand can drive employee alignment, new levels of operational performance and higher valuations on exit.
Getting the Timing Right
So, when does it make sense to invest in the brand of a portfolio company? The answer often comes down to the lifecycle stage of the asset.
If you’ve recently acquired a portfolio company as a platform play and intend to roll-up smaller competitors or conduct add-on acquisitions, a rebrand can be an extremely powerful value and performance multiplier. A deep 360°rebranding process – the kind that allows all employees to participate and contribute – will align people around a new vision and drive buy-in for new strategies. The brand becomes an operating philosophy by which to run the business, helping these organizations make personnel decisions, integrate operations, rationalize products and make future acquisitions with greater speed and certainty. This kind of deep rebranding is best done in the first 100 days of a company’s acquisition and before significant investments are made in ongoing marketing and advertising.
“We saw first-hand how an approach like BrandFoundations’ can help a portfolio company both internally and externally.”
– Scott McCormack
Partner, Seaport Capital
At the mid-point of a portfolio company’s lifecycle, the biggest driver of a brand engagement will be M&A activity. McKinsey & Co. – among others – estimates that 66-75% of M&A activity fails to deliver the value investors expect, due primarily to issues surrounding people and politics.* Clear communication around a shared story/brand goes a long way toward aligning internal culture to dramatically mitigate this risk.
Extreme Networks (NASDAQ: EXTR) is a great example of this kind of rebranding. After 20 years of positioning itself as a leading wired network hardware vendor, Extreme acquired a wireless routing and software company with the intention of becoming a top “software-defined networking” company. However, the deep rebranding process we conducted revealed that what audiences valued most – and found most differentiating from competitors – was how Extreme’s people and products enable better “relationships”… a brand essence that goes beyond hardware, software or any other product. That essence drove the new tagline, “Connect Beyond the Network,” which became a rallying cry for Extreme’s workforce and loyal customers, who helped to double the company’s stock price over a period of six months.
In the late stages of a portfolio company’s lifecycle, rebranding can again become an important strategic imperative. Updating a company’s brand ethos and identity can have a powerful effect on its perceived value. Due diligence by prospective buyers will reveal a company with a clearly differentiated brand and market position, backed-up by a vibrant and aligned culture… all of which justifies a higher valuation.
A Decision Too Important to Delegate
Rather than simply ignoring the brand-power of a portfolio company or leaving the rebranding decision solely up to management, private-equity sponsors should carefully consider where – and when – a deep and meaningful branding initiative can help drive performance and maximize exit value.
NYC-based sponsor Seaport Capital knows well the benefits of a strong brand. “We saw first-hand how an approach like BrandFoundations’ can help a portfolio company both internally and externally,” said Partner Scott McCormack. “It improves an organization’s competitive positioning and also changes the way employees at every level present themselves. We believe buyers notice too, creating a positive impact on valuation.”