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Brand Equity for Private Equity
Co-founder of top-flight private-equity firm says industry must do a better job with branding.
Can private-equity firms create the same sort of burly brands that the Coca-Cola Co. and Gillette have?
David Rubenstein believes that they can. And he should know. He's managing director and one of the founders of the Carlyle Group, a Washington, D.C., private-equity firm. Though not a household brand name, Carlyle is famed among the cognoscenti for the powerful connections of its staff. Among them are former IBM Chairman Lou Gerstner, former Secretary of State Jim Baker and former SEC Chairman Arthur Levitt.
Rubenstein, who spoke
Oct. 1 at M&A East, a conference in Philadelphia
co-sponsored by the Wharton Private Equity
Alumni Network, is the low-profile,
but famously
industrious, fund-raiser behind Carlyle's $12 billion under management.
He's said to spend 300 days a year on the road and to seldom sleep consecutive
days at home.
"A brand is a recognized perception of quality and value," Rubenstein
said. "It identifies a company in a unique way and enhances profitability
by allowing it to command preferred pricing." It's the reason
Coke sells for more than private-label concoctions of sugar, carbonated water
and
flavoring.
In general, the best-known brands belong to companies with tangible products, whether Coke's sodas, Gillette's razors or McDonald's burgers. "Only six of the top hundred brands belong to financial-services companies," Rubenstein pointed out.
In essence, the challenge lies in that financial companies provide a service, one that Rubenstein described as "renting money." Services are more difficult to standardize than products. What's more, they can't be literally branded — remember, the word originates with a rancher burning his mark on a cow's flank — the way a Nokia phone or a pack of Marlboro cigarettes can. Sure, banks and private-equity firms can hand out briefcases, shirts and knickknacks to clients, but that's not the same as placing a logo on every dollar they lend and invest.
Even so, a handful of financial-services companies have managed to create sturdy brands, Rubenstein said. Among them are Citigroup, American Express, Merrill Lynch and Goldman Sachs.
Take Goldman, he said. It has created a perception that it's built on teamwork and delivers to its customers consistency, high quality and elite status. "If Goldman can do it, presumably a private-equity firm can, too," he said.
That said, private-equity
firms do face greater obstacles. They tend to be smaller than the well-known
commercial and investment banks.
They don't deal with
the public. Their products and services are hard to understand. And
they are generally led by deal-makers, not marketers.
A few have established at least a measure of national name recognition,
if not full-blown brands. Consider Kohlberg Kravis Roberts, the buyout
firm
made famous
by the book "Barbarians at the Gate", and Kleiner Perkins
Caufield & Byers,
perhaps the best-known Silicon Valley venture-capital company.
Carlyle has tried to build the same kind of name recognition, Rubenstein said. It's done so by stressing "the firm, not its founders" and emphasizing an investment strategy that Rubenstein termed low-risk. "Our theory is that what most investors want is not to lose their money. They don't want heart palpitations."
Admittedly, he added, building a brand is a hassle. It eats time and money and doesn't yield obvious quick payoffs. But over the longer term, it can bring enormous benefits. "It lets you raise funds more readily, attract transactions more readily, recruit professionals more readily and ensure a stable long-term organization."
If you doubt the power of a brand, consider Google, the Internet search site, he added. "It's three years old and has done no advertising — it's all just word of mouth. And it's the most popular search site on the Web."
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