A new KPMG International survey has found that 58% of family businesses are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging.
While family businesses create more than 70% of global GDP[1] many say they find their fundraising options limited.
Private Equity funding often requires the entire business to be sold to maximise value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximising their growth potential.
KPMG has identified one possibly underutilised route for investment with the involvement of high-net-worth individuals (HNWIs), many of which have family business experience as well as significant investment capital. It is estimated that there are up to 14 million High Net Worth[2] Individuals around the world with around $53 trillion of wealth[3]. Survey results show that the top priorities of HNWIs and Family Owned Businesses align, making this underutilisation surprising: HNWIs name long-term capital appreciation (37%) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23%).
“We found that relations between family businesses and HNWIs in South Africa are exceptionally strong,” says Craig Steven-Jennings, Partner, KPMG in South Africa. “Four out of five family businesses have already obtained direct investment from HNWIs – and all of them were positive about the experience.”
The survey also found that family firms, in South Africa, were not just looking for a silent partner. All respondents were prepared for investors to offer advice and expertise – even offering a seat in the boardroom in one case.
“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs,” Christophe Bernard, KPMG’s Global Head of Family Business explained.
Other key findings of the survey include:
- 44% of HNWIs have previously invested in a family business and the vast majority (95%) say that it has been a positive experience in comparison to their other investments.
- More than three-quarters of survey respondents (76%) say that the family holds a majority stake in the business.
- 60% of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.
While there are challenges on both sides, Family matters: Financing family business growth through individual investors reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
KPMG in association with Mergermarket, surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
To view the survey results, please visit: http://www.kpmg.com/familybusinesssurvey/
[1] Source – Family Firm Institute
[2] Source – Wealthmanagement.com ‘Where in the World do the Rich Live?” (2014)
[3] Source – Capgemini, World Wealth Report, 2014 (2014)