How Private Equity Firms Use Digital Marketing For Growth

Business, Technology, Internet and network concept. Young businessman shows the word on the virtual display of the future: private equity

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

Portfolio companies have a few options for execution: building an in-house team, hiring an outside consultant, or using a hybrid model. Many find that collaborating with go-to-market consultants for PE firms provides the specialized expertise needed to develop and implement effective private equity marketing strategies.

For traditional sectors like the industrial industry, the first step is often foundational. Covington emphasizes the need for a high-converting website and the right content for an optimal 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.”

This process involves going back to basics: identifying the target audience, understanding their profile, and pinpointing their location and decision-making factors.

“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.”

This modern approach requires a level of transparency that some older companies might resist, such as putting pricing online. However, today’s buyers—many of whom are millennials, the largest segment of the workforce—demand more information upfront.

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 key component of modern private equity marketing strategies is Account-Based Marketing (ABM). This focused growth strategy aligns sales and marketing teams to create personalized campaigns for a pre-agreed set of high-value accounts.

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 says. “You can identify a list of, say, 1,000 companies you believe could buy your product. Then, you create ads specifically for them based on their online behavior and needs.”

The primary advantage of digital marketing in this context is its scalability and effectiveness in driving revenue growth in portfolio companies. With the touch of a button, a campaign can target a specific region or the entire country, reaching far more potential customers than a traditional sales team ever could.

“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.”

Perhaps the most valued aspect of digital advertising is its trackability.

“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