While the pandemic may have slowed down many private company ownership transitions, they are still on the minds of many owner/operators who aren’t getting any younger, or any more enthusiastic about running their companies for another 5 years or so, while they wait for the fertile selling cycle to return. We know there’s a lot of unused money out there, but potential buyers recently have been mostly shopping for bargains, being willing to accept the risk of riding out the virus cycle in return for a larger than normal return when it’s over. Not the best time to be selling, for sure. But – a new idea to consider: the family office as a buyer.
We tend to think about potential buyers coming from either the financial side or the strategic side. We think about the financial side as being private equity (PE) firms, venture capital firms or wealthy private investors who are looking mostly for a strong return on their investment, usually from a liquidity event down the road. On the strategic side we see primarily larger companies in a related industry looking for a growth or expansion opportunity or individuals who want to run the companies they buy. All valid prospects for the right situation.
But whether you feel the need to sell now or wait for the bargain hunters to drift off, here’s a buyer source that shouldn’t escape your radar – the family office – the investment vehicle of family wealth that continues to benefit the family that created it. Traditionally below the radar, these financial investors have typically invested their money via intermediaries (including PE firms). However, a recent trend is for family office management teams to look for investments directly, opening up a new source for prospects that sellers’ agents can approach directly. Their targets may include a wide range of companies from early stage through mature businesses, with a recent emphasis on environmental, sustainability and society impact businesses. But one way in which they can differentiate themselves is their willingness to ride out an investment for a longer period of time than other financial investors. Remember, they’re trying to put family money to work, and if an investment provides sound annual returns, they have fewer reasons to push for a liquidity event.
And remember, many family offices are not managed by the family that earned the wealth – they’ve turned over the active management to family office management companies that do the heavy lifting, manage the investments whether securities, real estate or operating companies, and distribute the earnings to family members who want to do other things with their time. Want to learn more? Check out www.familyoffice.com or suggest to your investment banker they add family offices to their search list.