The trend is undeniable. Family offices who were formerly minority investors in PE are now looking to control the investments and buy companies themselves.
Why would a prudent, established, wealthy family take on the additional risk of buying a company – of executing a direct deal? Forbes contributor Francois Botha provides a great list of reasons:
1 – Greater control and decision making
2 – Better value, interest alignment and return
3 – Reduced fees and expenses
4 – Strength of family office networks
5 – Making an impact
Imagine your family grew and sold a manufacturing business in your hometown. And now you’re looking for manufacturing deals in a 2 hour radius of your home because you know the industry and still have relationships that could triple the business in a few years. Your challenge – If you invest in a fund you cannot allocate your funds to a particular deal and if your relationships are strong – the value you create will be captured by many other parties. If you’re waiting on a club deal to come along you might be waiting for years.
The solution: go direct. The appeal of direct can be easily understood here. The family in the above scenario could pursue a direct deal. They find a small manufacturing business near their home and execute the transaction themselves. Now they bring their relationships to bare and in 5 years the revenue grows 3x. Instead of a 15 – 20% return which is typical for PE deals, this family might find their investment has a 100% or even 200% return. (up to 10x the return). And, if the deal is led by the family then they receive the full benefit of their relationships and knowledge.
For many family offices the choice to go direct is very compelling and we will see more and more pursuing direct deals.
I’ll end with bringing attention to another trend happening in family offices. Future generations are often more interested in making a positive impact with investments. Where philanthropy was the answer before there are more family offices who are using investments in profitable companies with impact-based missions to fulfill their desires to have a positive impact on the world. (see screenshot below)
If you’re looking to go direct get in touch with us. We can help.