Assets family firms can leverage to make successful acquisitions
In the 35 years that I have been advising family controlled companies, now, more than ever, these enterprises are growing by acquisition. Many corporate finance professionals, and the lawyers who advise them, view family firms as inventory for their deals, and low-hanging fruit at that. In my judgement, this view is both obsolete and dangerously myopic to private equity partners and business development executives as strategic players in the acquisition market.
In the first instance, most of the low-hanging [family business] fruit that did exist has been harvested by the ever-increasing tide of private equity firms. Fifteen years ago, in the US, there used to be hundreds of such firms; now there are thousands. But more significantly for the future of the private equity industry in its never-ending search for deal targets, what is left of the family business sector in the US is largely too small and too weak to be worth acquiring, or too strong and too sophisticated to be purchased at a bargain.
That is to say that family controlled companies that used to be targets for acquisition are now competitors of both financial and strategic buyers. And, most intriguing, is the entry into the acquisition business of single-family offices with both substantial liquidity and deep expertise in the world of family enterprise. Both family controlled operating companies and single-family offices bring to the business of acquisition assets that non-family controlled buyers can’t match.
2016 represents a landmark year for Sandaire as we celebrate the 20th anniversary of our establishment, initially as a single family office (SFO), and later as a multi-family office (MFO). Having been one of the pioneers of the MFO model in the UK, we have seen the sector evolve significantly to establish itself as a well-defined niche in the ultra-high net worth (UHNW) space in its own right. We see many parallels between this early UK market of the late 1990’s, where the MFO model was poorly-defined and even less well understood by clients, and the current market in Asia, which remains dominated by private banks, with very few full-scale, independent and institutional-sized MFOs. It is clear that the whole UHNW market in Asia is changing rapidly and it was, for this reason, we decided to establish our first office outside the UK in Singapore in 2012.
Unlike in Europe and the US, where substantive industrial and economic expansion occurred during the 18th and 19th centuries, bringing with it previously unimagined riches for many, most families in Asia did not begin to accumulate their wealth until the rebuilding period after World War II. As of today, the ‘wealth creators’ (the first and second generations) still control a large proportion of the family capital in the region, meaning relatively fewer families in Asia have begun the process of establishing SFOs (or engaging with MFOs) for the specific purpose of capital preservation and generational succession, (which we believe are the primary objectives of a family office). This is clearly changing, however, and many families are searching for ways to defy the old Chinese aphorism, that “wealth does not pass three generations”. We believe MFOs are uniquely placed to help families in Asia achieve this. The current options for UHNW families can be loosely grouped into three areas:
Private banks are by far the most common solution that wealthy families have sought to manage their assets in Asia, and their success has relied upon several factors - namely, a broad range of proprietary products and services, deep resources and the provision of credit (for speculation or for corporate requirements). However, we believe the current practice for a family to hold accounts with multiple institutions, whether for diversification, secrecy, lack of trust, etc., to be inefficient and generally sub-optimal.
It is also not difficult to see that the interests of the client and those of the banker (who is incentivised to maximise revenue from the client) are misaligned. We believe our independence and transparent service offering are the crucial differentiators between family offices and private banks.