Knowing when to sell and how to manage a portfolio of companies are the final two hurdles family offices face in doing direct private equity deals.
Unique insights to drive your family and family office forward, authored by Family Capital Strategy
Investment Governance Articles
So, What Would You Pay?
There is an exceptionally high cost to mediocrity. Giving up the liquidity and diversification of the public markets for a direct deal is not something that should be contemplated lightly, especially considering the opportunity costs of not having access to capital in turbulent times. Family Offices must have their eyes wide open about how valuation affects the deals they choose to do.
“Water, water, everywhere, but nary a drop to drink”
Family offices doing direct deals face the sizable challenge of managing a deal sourcing pipeline of several hundred opportunities per year.
There are 6,000+ private equity funds, several hundred independent sponsors, several hundred search funds, sovereign wealth funds, strategic players and additional family offices all actively looking for acquisitions. Any new family office must be cautious to not be the “patsy at the poker table.”
Far too often, family offices who are choosing to go down the path of direct investing are unable to articulate an investment strategy beyond that of “we only do good deals.”
Treating a business like an heirloom is a risky proposition. Businesses exist in a dynamic marketplace. While a family may wish to honor its legacy for generations to come through owning and operating the same business – it must also carefully consider whether they are the right owner to steward the business into the future.
There is a tremendous amount of wealth and growth capital being allocated by family offices. We have found the following framework to be helpful in understanding their investment approach.
Family enterprises are basically collections of paradoxes. While paradoxes are often treated in an adversarial manner, it is important to recognize the falseness of such a dichotomy, and work towards creative resolutions.
Selecting the right investment partner for a family office is a question that most offices will choose to answer as they structure their investments.
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