Private equity shouldn't shy away from focusing on branding as it can in fact be constructive in helping an organization stand out among its competitors.
“A lot of folks take the word 'private', in private equity literally,” said Stewart Kohl, co-CEO at The Riverside Company , at the PEI Investor Relations and Communications Forum in New York on Tuesday. Kohl has been with the firm since 1993, and for almost 30 years since its inception, the firm has focused on branding.
“I don't believe and certainly none of my colleagues believe that there's any contradiction between a strong brand and great returns. In fact, we believe that a strong brand is one way to create and cement strong returns,” Kohl said.
Kohl thinks a focus on branding can increase deal flow at a private equity firm and help firms land more deals. Riverside bought 44 companies last year but looked at 4,000 potential investments. Many of Riverside's acquisitions and reacquisitions, in the case of franchise holding company Dwyer Group 's investment in August 2014 for example, also happen because the firm has an open attitude towards having continued relationships with chief executive officers of prospective companies and is receptive to cold calls. “There are ways to win in deal bidding other than just pricing,” Kohl added. Companies that Riverside acquires have enterprise values of under $400 million.
Branding has also allowed the firm to create a more constructive dialogue with investors, according to Kohl. “Smart investors are trying to find not just which private equity firms are going to have great returns in the rearview mirror, but I think prospectively,” he said. “They recognise the value of culture and consistency.”
Earlier this month, the firm's latest micro-cap fund Riverside Micro-Cap Fund IV , held a final close on $542.2 million, above its $500 million target, Private Equity International reported . Sources said the fund is on track to hit its $650 million hard-cap. The buyout, corporate private equity vehicle, specialises in diversified investments in North America.
Riverside Micro-Cap Fund III, held a close in 2011 on its $350 million hard-cap, above its $225 million target. Fund III had a 1.1x net multiple of investment and a 12.7 percent net IRR, as of March 2015, according to the Employees Retirement System of Rhode Island , an investor in the fund. The Michigan Department of Treasury and Maine Public Employees Retirement System were limited partners in Fund III and IV.
The Riverside Company was founded in 1988 and has $4.6 billion in assets under management. The firm is focused on making control and non-control investments and since its founding, has invested in more than 410 transactions with a current portfolio of more than 80 companies, as of June 2016.