Sales & marketing is private equity’s route to market-beating exit multiples



I recently read a statistic from an EY study that got me thinking. In 2017 they found that on average, PE portfolios delivered organic growth broadly in line with the public market – around 3.8%. I know this was only one study, but it did lead me to ask: which strategies employed by GPs investing in B2B businesses are most effective at delivering market-beating organic revenue growth?

Organic growth is now an essential component of deal success. For higher multiples on exit, the best GPs are achieving disproportionate growth. However, with such high purchase multiples, traditional strategies of selecting companies carefully, changing leadership and waiting for growth have become a bit of a blunt instrument, with many frustrated at the length of time it takes to see results.

We know strategies that accelerate top line growth – versus simply improving costs – have the most powerful impact on exit multiples. But according to research by Bain & Company, strategies that do this by addressing commercial deficiencies – i.e. in sales and marketing – are far more likely to totally change the growth trajectory of an investment, on average seeing 20-30% higher returns.

In our experience, most B2B sales and marketing is largely traditional and disconnected. The commercial engine is not aligned to where the value is, therefore, not fit for growth. For example, 60% of all B2B businesses surveyed by Bain & Company, said they haven't done a good job at focusing their value proposition on their most critical target accounts.

Huge potential exists to turn these businesses into slick commercial operations. GPs that spot and fix commercial deficiencies early – not overlooking sales and marketing in the first 100 days – can open up new opportunities for revenue growth and fast. Here are three relatively quick and repeatable fixes:

1) Focus sales and marketing on the biggest bets for growth.

Sales and marketing becomes a blunt instrument if focused on selling everything to anyone, for fear of missing out. It should be focused on unlocking the most profitable opportunities for revenue growth.

Pinpointing the biggest bets for growth can be as simple as answering these questions: 1) which new or existing services or products are the highest value and the most profitable – or have the potential to be? 2) where is there growing or new demand – which markets, client segments or individual client accounts have the most potential? and 3) where are the biggest barriers to growth – either generating or converting demand that sales and marketing can unlock?

See my blog on focusing marketing on profitable growth.

2) Tailor value propositions for each big bet.

A strong B2B sales proposition can quickly boost sales and marketing effectiveness; it is proven to short-cut long sales cycles – driving clients to buy, buy now, buy more and buy from you. It’s a powerful tool, but in my experience many propositions fall short. They must be tailored to individual growth clients / client segments – how can you help achieve their business goals better, faster, bigger than the competition – not a ‘one-size-fits-all’ generic statement about products features and benefits.

See my blog on how to fix a failing sales proposition in just 5 days.

3) Align sales and marketing with shared goals.

Marketing performance is often measured by clicks, shares and downloads – not its contribution to profitable sales growth. What can marketing influence that will be the best predictor of achieving sales growth – i.e. shorter-term lead metrics? Increasing meetings with key targets, invitations to tender, trial sign ups, conversion rates are all good measures of potential revenue growth in B2B that marketing can influence.

Also see my blog on focusing marketing on profitable growth.

A strategy focused on boosting an investments’ commercial capabilities can be far more effective than cost cutting and board seats alone in achieving market beating organic growth. Identifying your biggest bets for growth and focusing sales and marketing on unlocking these opportunities – with tailored propositions and shared goals – will deliver quick wins in the first 100 days and help set up an investment for a successful exit.

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