A trend towards specialisation by private equity firms has been emerging over the last few years – driven by increased competition in the market – and it seems that those firms that have nailed their colours to a mast have made a good decision.
Research by Cambridge Associates (1) shows that PE firms with sector specialism have a competitive advantage. Their findings suggest that having deep sector experience drives higher returns and this is also supported by consultants Bain: “Sharpening focus on industry sectors and organizing around them help private equity firms create superior deals and returns.”
The benefits that deep sector expertise are well known:
- connects strongly with key people in that space
- increase quality of deal flow
- speeds up due diligence process
- help identify opportunities in prospective investments
- build credibility and trust with prospective management teams
So, so far so good but nothing that hasn’t been written many times before.
But what isn’t often discussed is the clarity and focus that sector specialisation provides when building a brand and marketing it – an additional benefit which when added to the list above further boosts the competitive advantage a firm has in a sector that is crowded, competitive and undifferentiated.
Knowing exactly where your expertise lies helps your firm identify their target audience and clearly articulate what you do and who you do it for – it sharpens your spear-tip with regard to business development and means you have a greater chance to puncture the armour plating than with a spade, the generalist alternative.
Having clarity over your audience, and repeatedly working with them, allows a firm to focus their efforts on unearthing the golden nuggets – those insightful pieces of information that identify the specific challenges their prospective audiences are facing. Which, in turn, means generating content, insights and research is then straightforward as it simply needs to amplify the challenges faced and how your firm is best placed to solve them.
Brand strength in UK PE sector
We recently undertook research to take the pulse of the brand strength of the UK mid-market private equity sector. Amongst other interesting insights, it allowed us to rank who has built and communicated a strong brand, and who hasn’t.
And the two firms that scored the highest in our research? Both sector specialists.