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What A Top Management Consulting Firm Revealed About Why Relationship Intelligence is Key to Private Equity Success


Private equity (PE) has experienced a surge in growth over the past five years. During this time, investors have allotted more capital to the asset class than at any other time in history. In 2017, $621B in PE funds were raised, an amount that bested the gold standard of $557B raised in 2018. 2018 is expected to once again set a new record.

PE is not only growing, but it’s also evolving. As more and more companies are earning unicorn valuations, PE firms are taking notice and funding companies at earlier stages. Over the past five years, unicorn PE deal count has quadrupled.

The rise of the PE has also given rise to an evolution in terms of the value that PE firms provide. As A.T. Kearney acknowledges, “The era when private equity was associated with mere financial engineering is a distant memory." More and more PE firms are focused on creating strategic value for their companies. Strong relationships with their portfolio companies have become increasingly critical.

Gleaning the full context

Many relationships between PE firms and portfolio companies get off to a rocky start after the check is signed. A study by A.T. Kearney revealed that 40% of CEOs acknowledge that the roles of the PE deal team and the operations team are not always clear. In some cases, CEOs receive conflicting directives from various stakeholders at the PE firm. One CEO who participated in the study explains, “Sometimes it was unclear who I was to report performance and issues to and often had to repeat the same story multiple times.”

It’s critical for PE teams to be on the same page. By leveraging relationship intelligence and CRM data, PE teams can understand the full context and history behind each team member’s interaction with funded companies. Using Affinity, PE teams can understand who was communicated with whom—and when. Teams can thus ensure that funded companies do not receive conflicting directions, are crystal clear on objectives, and are in a strong position to accelerate growth.

Driving communication at the right time

Effective communication between PE firms and portfolio companies is an art and science. Too frequent or too infrequent communication can sully the relationship. According to A.T. Kearney's research, PE operations teams should communicate with businesses on an almost daily basis during the first two to three months of a deal. These first months are critical for building the foundation for a strong, enduring relationship. Yet while daily communication cadence is desired in the early stages of the relationship, CEOs want slightly less frequent communication as the relationship endures, with 70% of CEOs preferring weekly interactions.

PE firms cannot afford to drop the ball in communicating with their businesses. Using Affinity, PE firms can keep tabs on their relationships with portfolio companies and ensure they are not dropping the ball. They can tailor alerts and reminders according to the stage of their relationship with portfolio companies and receive automatic updates when it’s time to communicate.

Tapping into networks

A.T. Kearney's research also revealed that CEOs especially value having access to PE firms’ far-reaching networks. “PE operations teams offer broader connections and a network of experts and consultants that can be rapidly deployed to support management.” Oftentimes, CEOs and management team are unsure as to how to most effectively leverage PE firms' networks. Portfolio companies often squander time asking PE firms whether they are able to provide introductions to valuable connections such as new hires, new potential business partners, or lucrative potential customers.

By using Affinity’s Alliances, CEOs and management teams are able to gain access to their PE firms’ network and proactively identify how they can leverage the expansive networks to supercharge their success. Not only do they save time, they also maximize their chances of success because they are able to identify relationship strengths and pinpoint the most effective paths to an introduction.

The value provided by PE firms needs to transcend beyond financial engineering. In order to spur true value creation, PE firms need to be laser-focused on forging strong relationships with their portfolio companies. They cannot afford to act as silent advisers. Relationship intelligence empowers PE firms to provide exceptional value to their portfolio companies and, in turn, fuel growth.

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