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The Growth of Middle Market Family Offices

By Generational Equity

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One of the most interesting trends we have seen develop over the past decade in the M&A arena is the tremendous expansion of Family Offices moving from investing via private equity firms to direct investing in middle market companies.

For those of you unfamiliar with Family Offices (and many are because of how secretive and private most Family Offices are – more on that later), here is the general definition of a Family Office: 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 (although many are far smaller than that), with the goal being to effectively grow and transfer wealth across generations. The company's financial capital is the family's own wealth.

Our friends at Axial recently released a comprehensive study on the growth of Family Offices and what makes them unique (separating them from traditional Private Equity firms). Here is how they summarized today’s Family Office landscape:

Few if any segments across the M&A market are as enigmatic as the family office. Their growing presence, both in the breadth of new family offices and growing volume of capital at their disposal, is particularly intriguing to sellers and investment banks seeking to forge new relationships. The caveat is that most family offices also tend to maintain a very low profile, prioritizing privacy over unconstrained deal flow. This can make it challenging to not only identify prospective family office acquirers, but also to understand the types of assets that may appeal to a category of investor that has historically been difficult to categorize.

So, the first point above is critical. Family Offices should be on the buyer list you create for your business when ready to exit. However, the challenge for most non-dealmakers is that finding them, and more importantly, finding the ones actively investing in your industry, can be a HUGE challenge.  This is one of the reasons we highly recommend that you hire a professional M&A firm like Generational to represent you. We have a buyer database of over 34K, a good portion of which are Family Offices. They have told us exactly what they are after, enabling us to create highly targeted lists of buyers for our clients. But on your own, finding them can be a challenge.

And here is why Family Offices should be part of your mindset as you consider exiting:

The biggest factor influencing investment strategies, and distinguishing family offices from
other buyers is the extent to which investors aren’t constrained by timelines to source, close and exit investments or under any pressure to put capital to work in less-than-inviting conditions. Again, the overriding objective for most HNW (High Net Worth) and UHNW (Ultra High Net Worth) investors is capital preservation.

This is why our clients have found working with a Family Office so rewarding: Typically, the family behind the capital doing the investing has grown up in your industry AND they are all about maintaining and growing the legacy you have created.  For many of our clients, exiting can be very troubling emotionally, especially if the business is 2-3 generations in. 

The beauty of most Family Offices is that they understand the key motivation of growing and expanding your legacy and are willing to put the capital and expertise in place to do so, most often with no exit timeline at all.  As we have seen repeatedly, as the closing date gets closer to reality, the idea of legacy, community, employees, and other factors often become more important than the sale price for many business owners.

For many business owners, Family Offices are perfect buyers!

If you would like to learn more about all types of buyers (including Family Offices) I would recommend that you attend a Generational Growth and Exit Conference soon. We hold these throughout North America and they are designed to get you started on the right foot in your exit journey.

Bottom line: There are loads of buyers out there right now looking for well-run companies (and even some poorly run companies), so cast as wide a net as you can when you work on your exit plan and try to find some Family Offices active in your niche.

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

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