Key Takeaways
- Family offices are typically viewed as passive investors, meaning they usually refrain from taking direct control over management and operations.
- Family offices possess the capacity to adapt their investment horizons based on the specific deal and prevailing circumstances. They also typically have a longer hold time than a Private Equity Group.
- If you’re looking for a transition plan that prioritizes continuity in the management team, a family office's limited role may be appealing.
As you begin to think about your options for exit, one that may not immediately come to mind is selling to a family office. But with over 6,000 family offices currently established in the U.S., this type of buyer is gaining popularity for several key reasons.
What is a Family Office?
A family office is a private wealth management advisory firm established for the purpose of managing a family's wealth. The primary function of a family office is to manage the wealth and financial affairs of these families, providing a range of services such as investment management, estate planning, tax services, philanthropy, and more. Family offices can be single-family offices, serving one wealthy family, or multi-family offices, serving multiple families.
Advantages of Selling to a Family Office
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You’ll have more control and influence.
Family offices are typically viewed as passive investors, meaning they usually refrain from taking direct control over management and operations. When engaging in acquisitions or investments, their support is generally rooted in endorsing the existing business strategy crafted by current executives. Further, family offices expect these executives to continue leading the company post-transaction.
In contrast, Private Equity Groups (PEGs) may lean towards a more involved approach, dependent on their strategic goals and relationships. PEGs are more inclined to engage operating partners or former industry executives to assist with day-to-day operations. Moreover, strategic buyers often absorb the acquired company into their existing operations, assuming control over the majority of decision-making processes.
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The transition process is more direct and efficient.
Family offices have direct control over their wealth, so they can make prompt decisions without the constraints of corporate boardroom approvals or limitations imposed by PEG fund directives. This autonomy grants them the flexibility to explore investments in emerging industries, alternative or niche strategies, and more.
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Your exit timeline can be more flexible.
Family offices possess the capacity to adapt their investment horizons based on the specific deal and prevailing circumstances. Their ability to retain companies for extended periods — in contrast to Private Equity Groups — allows the acquired businesses to fully execute their intended strategies. This flexibility enables both the family office and the acquired company to concentrate on long-term strategies, prioritizing sustained success over short-term gains.
Is a Family Office the Best Buyer for Your Business?
To determine if a family office is a suitable transition strategy, consider the following:
Alignment of Values and Objectives
Family offices often have specific values, investment philosophies, and long-term objectives. It's crucial to assess whether these align with the vision you have for the company. Understanding the family office's mission and goals can indicate whether they are a good fit for your business.
Industry Expertise
Some family offices focus on specific industries or sectors. It’s important to assess whether a family office has expertise or experience in your industry. A family office with industry knowledge is more likely to understand the nuances of the business and contribute positively to its growth.
Operational Involvement Preferences
Understanding the family office's approach to operational involvement is important. Many family offices prefer a hands-off approach, allowing existing management to continue running the business. If you’re looking for a transition plan that prioritizes continuity in the management team, a family office's limited interference may be appealing.
Long-Term Investment Horizon
Family offices are known for their ability to take a long-term view on investments. Business owners should evaluate whether the family office's investment horizon aligns with their own strategic plans for the business. If you’re looking for a buyer who is willing to support the company's growth over an extended period, a family office may be an appealing option.
Choosing the Right Exit Strategy for You & Your Business
Transitioning your business to a new owner is a big deal — one that requires careful consideration. Ultimately, the right buyer will depend on your unique goals for yourself and for the future of your business. Working with experienced advisors can help you gain clarity on what your exit should look like and who the best buyer will be.
Ownership Transition
A trusted advisor can help you understand the decisions and actions you can take throughout your transition journey.
Who We Are
Eide Bailly is a CPA and business advisory firm helping our clients grow, thrive, and embrace opportunities and innovation.
