Monthly Update – July 2017- Consider A Family Office as a Potential Buyer or Partner for Privately Held
Featured Clients this issue:
**Details of each client below article
– Relocatable! Digital Media Services Provider #317
– Indoor/Outdoor Entertainment Store #517
– Profitable Educational/Training Franchise #1516
When we take a business to market, we try to profile the type or types of buyers that are probable candidates to purchase the company. Typically, we would consider strategic buyers, which are usually larger companies in the same industry, Private Equity Groups (PEGS), Family Offices, and/or high net worth individuals. As Family Offices are becoming more common and more active in M&A transactions, we have elected to feature an article by an experienced M&A professional, Joe Sands. Joe is a member of Corporate Finance Associates, my investment banking network. I believe Joe provides an excellent commentary on the characteristics of Family Offices.
* Direct investing provides Family Offices with the potential for superior returns, transparency and control of their investments in private companies
* In some cases, private companies’ interests can be better aligned with a Family Office as an investor or owner than with a traditional funding source
What is a Family Office?
A Family Office is an entity that provides services to either a single wealthy family or multiple wealthy families. The Family Office (FO) is generally set up by the wealthy family (a family with assets typically in excess of $100 million and often in the billions) and ranges in the number of professionals employed and services covered. FOs invest in larger transactions and typically write equity checks of 3 million to 25 million. The services provided by a family office are tailored to the family’s needs, and can cover: (i) wealth management, (ii) investment management, (iii) private banking, (iv) accounting and tax management and (v) other services such as travel, legal, bill paying and security. The rationale for setting up a family office is centered around privacy, confidentiality, control, transparency and a consolidated team working together without any bias or conflicts of interest. FOs invest across a wide array of domestic and international public and private securities as well as real estate. Collectively, family offices are estimated to hold assets in excess of $2 trillion.
Advantages for the Private Company:
* A FO’s primary objective is to preserve and grow wealth over the long term rather than selling their best investments quickly or using high amounts of debt in order to generate a high IRR of new investment funds.
* FOs are more likely to hold a good investment for many years or even potentially in perpetuity and to be an ongoing source of growth capital for the company.
* FOs are already running businesses and are sensitive to the softer issues such as company culture, succession issues, impact on the local community as well as maximizing business strategies. Most have been through up and down economic cycles and won’t take short-cuts to preserve their jobs.
* The different investment objective of a FO can also manifest itself in less balance sheet leverage being employed which may be attractive to business owners who want to be sure of the future stability of the company. Many institutional investors focus on maximizing IRRs which can bring with it an interest in maximizing debt levels since the higher the leverage, the higher the return on the equity, everything else being equal. Most FOs, on the other hand, are more conservative on the use of debt in their acquisition financing.
* Finally, FOs are using their own capital and can therefore close on investments quickly without relying on bank or investment committee approvals.
When considering a sale or capital raise for a privately owned business, there are many types of traditional and non-traditional capital providers and acquirers. A well thought-out strategy for each situation must be developed to engender a successful outcome. Doing so requires evaluating which types of investors to reach out to and including multiple types of investors. This will no doubt maximize business value as well as the ongoing operating relationship. Family Offices are a good complement to a robust investment banking process.
This month’s featured article is submitted by Joe Sands, with over 20 years as an investment banker, advisor, entrepreneur and investor. Joe has relationships with family offices and has been involved in transactions involving start-up to multibillion dollar businesses. Joe brings broad, in-depth experience that is greatly valued by clients, as well as their other advisors, in the pursuit of corporate goals. In addition to his general investment banking practice, Joe focuses on merchant banking opportunities, making direct investments in companies were he can provide valuable expertise or experience. Joe can be reached at Corporate Finance Associates Los Angeles, (949) 457-8990, firstname.lastname@example.org
The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
Ronald V. Chernak
Inspiring business relationships since 1982!
Relocatable! Digital Media Services Provider #317
Th is organically grown web services business continues to generate great profits by providing both local and national brands with website design, custom coding, mobile application development, online marketing, and paid advertising services. The company prides itself in being “all things digital,” allowing it to work with selective clients alongside other more traditional marketing agencies. With a distributed work force and low overhead, this business could be easily run and scaled by an individual owner with a marketing background or by a synergistic buyer looking for a profitable add-on opportunity. The business just signed a long-term contract with a national brand client that has an annual budget of approximately $600K for services and is poised for more growth under new management.
For more information contact Robert Amerine email@example.com.
Indoor/Outdoor Entertainment Store #517
This growing, family-owned business is a full-service retail outlet for spas, billiards, and related accessories, including products such as pool table lights, game tables, bar stools, outdoor grills, BBQ islands, etc. Established in 1995, the company has a well-known local brand and loyal customer base with established vendors and suppliers. We believe this business is a good fit for marketing/sales minded entrepreneur or as a solid add-on opportunity for an existing business looking to capitalize on the outdoor entertainment industry.