Family Offices in Today’s M&A Market

Family offices are increasingly investing in middle-market operating companies.

In today’s marketplace, there is a growing presence of family offices. Whether you are considering selling your business in the near future or not, this group of investors is becoming increasingly competitive when it comes to making direct investments in privately held businesses and could make sense as a potential suitor when that time comes.

What is a family office?

Generally speaking, a family office is an organization that manages the personal wealth of a single family, often generated from successful business operations or exits of their own. Increasing in numbers, these investment groups commonly are unknown to the general public and almost seem to fly under the radar. Unlike a raised private equity fund, family offices don’t have to register with regulators so long as the money being invested and advice being given is to those associated with the common ancestor. Family offices utilize a variety of different strategies to drive portfolio returns such as investing in stocks, bonds, real estate, commodities and other investment vehicles.

Historically, family offices have invested in privately held companies through private equity or hedge funds, but more today are seeking to get directly involved and utilize sweat equity to generate higher returns. In regard to direct investments, some prefer to invest in industries they know well and have had success while others seek diversification or those with attractive characteristics. As a result, more family offices are building internal teams with experienced M&A professionals and operational executives such as retired CEOs and CFOs. While generational wealth is not a new phenomenon, the number of family offices directly investing in middle-market operating companies appears to be.

How does a family office differ from traditional private equity?

As mentioned, family offices invest their own funds as opposed to those of outside investors. Given that dynamic, family offices generally have more flexible investment criteria, such as preferred investment holds, desired size parameters and performance metrics. Private equity traditionally uses greater debt levels on its transactions, whereas family offices prefer to deploy more cash at deal inception. These general points can give some sellers an increased level of confidence since the transaction structure of a family office is likely to be lower risk at the onset with less debt being utilized and a longer-term hold mentality. Like private equity, family offices often do seek majority control investments at close or at least a clear path to achieving majority control and can entertain rollover equity.

The exact number of family offices globally remains unclear; however, various sources estimate the total number to be in excess of 5,000 and some in excess of 10,000. Examples of larger and well-known family offices include the likes of:

• Pritzker Group
• 1888 Management (Koch Brothers)
• Bill and Melinda Gates Investments
• Vulcan Capital (Paul Allen)
• Heinz Family Office
• Huizenga Capital Management
• OW Management (Oprah Winfrey)

While every deal, seller and circumstance is different, it is clear that family offices are becoming increasingly prevalent in today’s M&A market and may be worth exploring as a potential exit strategy.

For more information or to better understand your options related to transitioning your business, please contact Michael Schroeder, vice president, at ms@taureaugroup.com or any member of the Taureau Group team at 414-465-5555.