Securing Investment For Growth

As the economy picks up, many business owners are considering their options for achieving growth and the next phase of their company's evolution.  Gary Deans, who leads KPMG's family business practice, discusses the considerations for family businesses in this position:

"We are talking to a number of family businesses about their growth plans and how to deliver on them. Of course, there's a spectrum; from organic growth to external investment or funding to propel growth.  Some are interested in finding a partner to deliver significant extra firepower through a joint venture, and of course there is always the option of a sale if this complements changing family dynamics; from a desire to realise the family's investment, to a lack of family succession routes.

"Accessing growth capital is a complex matter, and can be even more challenging for family businesses due to the tendency to wish to maintain control, which can limit options. It's important to firstly understand what an investor or funder will seek; to be clear on what is acceptable to you and the business; and, with this in mind, to position yourself attractively to secure the investment or funding sought.

"The key point to address is that all investors look for growth to fund their return. What varies is their attitude to risk and whether that return is sought in the short, medium or long term. Communicating how the money is to be used and a clear plan for how growth will be achieved - through new markets or new products for example - is vital.

"A cultural obstacle for many family businesses is the need to open itself up to external oversight from an investor. Requirements will vary from relatively basic financial information, to a place on the board and an active role in the running of the business.  It is important to evaluate the investor's likely requests with an open mind; after all they can bring new insights, experience and contacts which can help a business grow. 

"In examining sources of funding for family businesses, our recent report Family Matters found that high net worth individuals made excellent business partners for family businesses, in part because of their expertise, long-term investment expectations, and, many cases, shared values - which we often hear as an important criteria from family businesses.

"Of those family businesses that have attracted funding from high net worth individuals the overwhelming majority (92%) of businesses canvassed for our report, say that the experience was positive in comparison with receiving financing from other sources."

One family that decided investment through a change of ownership was right for them is the Levine family from South Yorkshire. They had owned and run Hi-Level Enterprises, one of the UK's leading distributors of motorcycle parts, for almost 30 years.

KPMG recently advised them on their sale of the business to US-based Arrowhead Electrical Products Inc, a global distributor of electrical parts. This enabled financial director Hilda Levine to retire, while son, Paul Levine, the managing director, will continue to run and develop the UK operations, with access to Arrowhead's significant resources, network and expertise.

He said:  "We look forward to working with the Arrowhead team to further grow our business. With their support our committed team here can really push on to expand Hi-Level, driving the business to reach its full potential."

Commenting on this transaction, Gary Deans said: "This is an excellent example of a family recognising the benefits of a sale, enabling the owners to realise value for their hard work and investment while securing the resources of a major player in their field which will allow further development of the business. The family have made a strategic decision which will allow them and the business to meet their objectives."