Financing Family Business Growth Through individual investors
17th September 2014
Major new report from KPMG explores the relationship between family firms and investors
While family businesses have the unique characteristics of a family, they like other companies are often in search of financing to propel growth. Moreover, with the number of people who live off the family business revenue increases generation after generation, additional pressure for growth needs be addressed.
To increase profit and accelerate growth, a business requires strong financing. Access to capital post global financial crisis is not always easy and the fact that the majority of family businesses view
maintaining control over their company as a key success factor makes financing options even more limited.
This strong desire of family businesses to remain majority ownership creates the opportunity for high-net-worth individuals (HNWIs) to play a role in bridging the funding gap via partnering.
Mergermarket on behalf of KPMG International surveyed 125 family businesses and 125 HNWIs to explore the relationship between family businesses and HNWIs and outline how the two groups can produce a lasting and productive relationship.
The survey results echo KPMG member firms' opinion that despite the challenges, family businesses and HNWIs can make excellent business partners. The report offers insights for both HNWIs and family businesses who are embarking on this journey.
Retaining majority ownership is important for family business.
76% of those surveyed say that family members retain a majority share of the business. In addition, the vast majority of family owners are unwilling to sell the business or relinquish control over it.
Nevertheless, many family businesses recognize the importance of external influence and the value of independent board members.
Around half of those surveyed say that more than 50% of their governance board is composed of non-family members.
Like all companies, family businesses need finance.
58% of those surveyed are currently seeking external financing to fund their business development plans. Expansion is the priority for most in both the short term and the long term.
42% of family businesses have previously raised financing from HNWIs, but in most instances the HNWI is a close friend or relative of the family business owner. 92% say that this has been a positive experience in comparison to financing from other sources.
HNWIs generally self-manage a large proportion of their investments.
72% take responsibility for half or more of their investments. Only 25% manage their investments through a family office.
The majority of HNWIs are looking for investments with reasonable risks and reasonable returns…
44% of HNWIs have previously invested in a family business and 95% say that it has been a positive experience in comparison to their other investments.
The main factor that would deter HNWIs from investing in family business is the possibility of conflict among investee family members.
A lack of availability and limited information on the opportunities is another main reason for not making more of these types. HNWIs would often like to have an equity stake, which (in some cases) could be a barrier to investment.