Private Equity Firms Turning to Digital Marketing to Make Portfolio Companies Prosper Faster
Written by Betsy Denson
Middle-market private equity investors have always been concerned with profitability at their portfolio companies, but as the landscape changes – and competition increases – these firms are needing to scale up more quickly to grow their portfolio companies. For this, they are turning in greater numbers to digital marketing and demand generation.
“Firms are paying a higher multiple on the deals and want to make sure that there will be a healthy return for investors, within their expected time frame,” said Libby Covington, Partner at Craig Croup, a marketing strategy firm. “The importance of quick growth and quick revenue enhancement of a company through digital marketing and lead generation is very important in today’s climate.”
Covington says that while the makeup of private equity firms’ operating partner team used to include a former CEO with expertise in an industry, now firms are adding chief operating officers and chief information officers, plus maybe a few members with recruiting proficiency. Also, many are now adding a chief revenue operations officer.
“This is the first I’ve heard of in the last year where these middle market private equity firms are hiring sales and marketing professionals in their operating partner teams,” said Covington.
Private equity firms are doing this because digital demand generation has a proven track record of helping the portfolio companies grow more quickly.
An April 2022 article in the Wall Street Journal cited data from the Interactive Advertising Bureau and PricewaterhouseCoopers LLP that showed digital ad revenue in the U.S. jumped 35 percent to $189 billion in 2021. That topped a 12 percent growth rate in 2020. The article noted that the year-over-year growth in 2021 was the highest the digital ad market had seen since 2006.
“Business to consumer has been doing digital well for a long time,” said Covington. “Now business to business is taking note. Probably ninety percent of middle market private equity portfolio companies are business to business. If they thought they could get the revenue growth by hiring 100 salespeople, they would do it. The goal is not to embrace the new world of digital marketing, the goal is what’s going to sell more product or services in the most efficient manner.”
While industries like retail, healthcare and automotive are well versed in the digital landscape, there are other industries that have come around in the last five years.
“For a company selling valves or industrial business services, COVID is what super charged them,” Covington said. “Salespeople can’t just walk into a business anymore because the decision maker may be working from home. With digital advertising, you are growing sales because the leads are coming in. It’s more failproof.”
DELIVERING THE MESSAGE TO THE TARGET MARKET UNTIL THEY CONVERT
A portfolio company might hire a team in-house or an outside consultant to help them achieve their goals, or a combination of the two.
Covington said that for some of the more old-school companies, like the industrial industry, who have not traditionally been using digital means to feed sales, the best start is to ensure that they have a website that converts as well as the correct content for the user experience.
“That’s the main thing that business to business can do better,” Covington said. “Improving their company’s website and using the right keywords to grow organic search engine optimization will get them a long way. They need to make it easier for the user to find them and understand how the company can help them.”
For many, this means going back to the basics of determining who the target audience is for a company’s product or service, what they look like and where they are located.
“It’s really the whole marketing funnel for business to business, finding the market and understanding what their decision factors are,” Covington said. “Then you wrap the web content around that – whether that’s used in advertising through digital means, or organic posting that boosts your SEO. You want to expose your target market to your message, until they convert.”
While some companies might resist putting their prices online, Covington said that buyers require more now to convert.
Forbes Magazine notes in an article about consumer shopping trends that millennials, or those born between 1983-1998 make up the largest part of the labor force.
Coresight Research Founder and CEO Deborah Weinswig told the magazine that millennials have a “channel-agnostic view – online, offline — the distinctions are irrelevant to these shoppers.”
Covington has heard the same from those purchasing for their business.
“They just want to see everything that they need to know online and then decide,” she said. “The decision makers in private equity are younger too. They understand that the portfolio companies that they invest in need to be putting more information out there. It saves time, saves effort, and the buyer feels like the transaction is more honest, despite the fact they are still being sold.”
ACCOUNT BASED MARKETING IS A GAME
A 2006 article in the Harvard Business Review, ‘Ending the War Between Sales and Marketing,’ talked about how account based marketing – a focused growth strategy in which marketing and sales collaborate to create targeted ads for an agreed upon set of high-value accounts – can align the two teams.
“With ABM, companies can super target their advertising and sales dollars,” Covington said. “Say you come up with 1,000 companies you think could buy your product. Ads are created specifically for those companies, based on the usage of the internet that you think is a natural fit for your product or service.”
The difference with digital marketing is that it is so scalable and effective in assisting the sales team to grow revenue. A touch of a button can show ads to a target audience in a region, or to the whole US.
“It just makes it faster which is what private equity firms want,” Covington said. “They are looking to find new ways to grow their portfolio companies more aggressively and more quickly and more reliably. These companies can reach so many more people than an individual salesperson can ever meet, even if they sent out blast emails, even if they visited everyone that they knew. You’re never going to touch as many people as you would with digital marketing.”
And while digital advertising is not brand new, its usefulness is valued because it is so trackable.
“It is different from billboards and TV ads because you can literally see if someone came to you from a Facebook ad or a Google ad,” Covington said. “Companies pay $50 for an ad that lands them a 500K client. That’s what people love about it. “There’s that attribution.”
Article initially published on Advertising Week