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Family Offices Playing a Key Role in Middle Market M&A

By Generational Equity

Family Offices

As we have discussed in past Insight articles, Family Offices are becoming more and more of a factor in middle market M&A. In 2021 it is anticipated that they will play an even more aggressive role in acquiring assets among privately held, family-run businesses.

For many of you, the term Family Office (or Multiple Family Office) may be new. Although definitions vary, in general, they can be described as:

A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations (although many Family Offices have far less than this $100 million threshold).

The company's financial capital is the family's own wealth. Family offices also may handle tasks such as managing household staff, making travel arrangements, property management, day-to-day accounting and payroll activities, management of legal affairs, family management services, family governance, financial and investor education, coordination of philanthropy and private foundations, and succession planning.

In recent years, Multi-Family Offices have emerged where a management company is hired to handle the investments (and overall business/philanthropic affairs) of several Family Offices that are pooled together to better handle the expenses associated with managing the wealth of a family. Generally, MFOs work for families with far less than the $100 million in investable income mentioned above.

It is widely believed that the Rockefeller family first pioneered Family Offices in the late 19th century (although there are records predating that for Family Offices operating in Europe). Family Offices started gaining popularity in the 1980s, and since 2005, as the ranks of the super-rich grew to record proportions, Family Offices swelled proportionately.

In recent years Family Offices of all forms have become a very active buyer type for privately held, middle market companies. Several factors have driven this trend:

  • Family Offices generally have very, very long hold periods (often having no terminus point for holdings at all) making them very attractive to entrepreneurs who want to leave a business legacy that is protected and grown, not flipped!
     
  • Most Family Offices have been born out of a family owning a business in a particular industry, often over several generations, giving the family a great deal of expertise in particular industries. Again, this makes them very attractive targets for business owners concerned about the longevity of their creation.
     
  • In addition, more and more Family Offices are operating as quasi Private Equity Firms, providing expertise, capital, professional management and, most importantly, strategic contacts to their acquired companies; opening up significant growth opportunities for the acquired company to expand well beyond the founding entrepreneur’s vision.
     
  • Family Offices speak the language of the entrepreneur making the transition from one family to the next quite seamless and smooth.
     
  • Generally, Family Offices also offer a great deal of stability to sellers who realize that, if a Family Office and the family (or families) behind it have decades of operating success, there is less concern about the buy and flip concept affecting the entrepreneur’s dream.
     
  • From the Family Office perspective, direct investment in a privately held company is far more lucrative than investing via a Private Equity firm, and also allows the family behind the Family Office to participate directly in their holdings, again usually providing expertise across multiple generations to the acquired company(s).

For these reasons (and many, many more), we are suggesting that all entrepreneurs who are considering an exit from their business be sure to add Family Offices to their target buyer lists. To overlook this very popular (and growing) portion of the buying community does a great disservice to the seller’s attempts to obtain an optimal value and deal.

To provide you with even more information about how Family Offices operate, and how they may benefit you and your exit plans, I would suggest you watch the following video interview by the Association for Corporate Growth’s “Growth TV”.  Tony Wood of RSM US LLP moderated a panel, which features Andrea Nickel of Celina Capital, Brad Scholtz of Scott Capital, and Ken Heuer of Kidd & Company. The speakers provide invaluable insight into how Family Offices operate, perform, and grow:

If you listen to the entire panel discussion you will note a common theme: These Family Offices were born, in many cases, long ago and are focusing on the longer-term for their investments. Again, this provides entrepreneurs with the added comfort of knowing that the legacy they have built over the years will be left in nurturing, like-minded hands. 

Generational has extensive experience working with Family Offices as buyers. As this buyer group continues to grow, our deal teams maintain ongoing contact with key members of leading Family Offices in order to introduce our clients where appropriate.

To find out if Family Offices are logical targets for your growth and exit plans, you should contact us to discuss your business, its history, and its future. To learn more about Generational and our services, please use the following links:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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