We recently outlined the various buyer groups to consider when selling your business, which include family members, employees, outside parties such as competitors or customers and private equity groups ("PEGs"). There is another buyer group quickly emerging as an attractive option for business owners: family offices.
What is a family office?
A family office is a private investment firm established for the purpose of managing a family's wealth. This type of firm establishes a new approach for wealthy families to directly invest their wealth in private companies or other investment vehicles. Such organizations supposedly date back nearly a century to the times of John D. Rockefeller, but more recently have become a popular structure versus traditional investment firms. They can come in the form of single-family or multi-family offices, and typically hire tenured investment professionals to manage the office and invest their capital.
What are some advantages to selling to a family office?
- Less Control and Influence. Most family offices are considered passive investors, which means that they typically do not take control over management and operations. When they complete a particular acquisition or investment, it is usually because they support the business strategy established by current executives and expect them to remain with the company after the transaction. PEGs may prefer to become more involved, depending on their strategy and relationships, and are more likely to call on operating partners or former industry executives to assist with operations. Strategic buyers will typically integrate the acquired company into their operations, thereby controlling almost all decision making.
- Direct and Efficient. By controlling their own wealth, family offices are free to make quick decisions and are less restricted in their selection criteria for investments. They are not subject to corporate board room approvals or restricted by PEG fund directives or limitations. This allows for additional flexibility to invest in emerging industries, alternative or niche strategies, etc.
- Flexible Timelines. Family offices are able to alter their investment horizons depending on the deal and situation. They can hold companies for long periods of time, which may allow acquired companies to fully realize their intended strategies. This affords both the family office and company the ability to focus on long-term strategies, rather than short-term gains.
Would a family office be an appropriate buyer for your business?
The most appropriate buyer typically depends on a multitude of factors, the most important to consider is your underlying reasons for selling and the desired outcome you hope to achieve. If you'd like to learn more, please contact your Eide Bailly service provider, or a member of our transactions services team, to discuss the various options for selling your business.