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 many say they find their fundraising options limited.
Private equity funding often requires the entire business to be sold to maximize 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 maximizing their growth potential.
KPMG has identified one possibly underutilized 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 Individuals around the world with around $53trn of wealth.
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%).
“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. “By breaking down some of these barriers, KPMG’s Family Business professionals can help clients to build better business partnerships, encouraging increased collaboration between these two groups across the globe for their mutual benefits,” he concluded.
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.
“The fascinating results distil the essence of what potential HNWI investors look for, and their value to family businesses. Having interviewed the entrepreneurs directly, we really dived into the core of the subject matter without distorting what HNWIs expect and how they operate. Wealthmonitor is proud to have opened the doors to this highly sought after segment of the market,” explained Florian Pixner, Managing Director EMEA of Wealthmonitor, part of the Mergermarket Group.
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.