There’s a common misconception that family businesses seem to be entirely self-financing and therefore self-sufficient. Our recent global survey shows a very different story for family businesses in most countries.
Many family businesses are in fact seeking capital to fund expansion plans. They aren’t just seeking any investment though, as the unique structure to the family business model means that most are innately reluctant to relinquish control, while still seeking long-term investments. This leads to distinct challenges when it comes to finding finance that suits their needs.
This approach to financing means that most family businesses are looking further afield than the traditional options such as banks, and our survey found that an increasing amount of family firms were interested in HNWIs as investors, even if it means bringing them more holistically into the business.
Our survey did find that the opinion towards financing did differ slightly between the different countries, the key findings of certain countries being highlighted below:
Interestingly, the USA is one of the few countries surveyed where it seems to be the family businesses instigating external financing from HNWIs, rather than the other way round, which is the case more often.
Despite more than half of those surveyed seeking finance, there is still a reluctance in UK family businesses to find finance from HNWIs, with only 33% having offered equity to HNWIs for investments previously. Traditionally UK family firms have steered away from external investors, but the current business climate has more of them exploring alternatives to bank finance to fund growth and working with other families and individual investors could prove an attractive option.
Russian HNWIs are very interested in investing in family businesses, as most find the structure to family businesses a very attractive investment. Complimenting this is the fact that family businesses in Russia also view HNWI investment favourably, with four out of five businesses having previously offered equity to an external investor.
Spanish family businesses are very receptive to HNWI investment. Eighty percent of Spanish family business executives interviewed said they had previously received HNWI investment, and rated the experience a positive one. This positivity is down to two key things: trust and transparency.
Relations between family businesses and HNWIs in South Africa are exceptionally strong, according to the survey. 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 were not just looking for a silent partner. All respondents were prepared for investors to offer advice and expertise.
In the Middle East, family businesses show a definite appetite for investment. The fundamentals are in place to connect family firms with HNWIs – four-fifths of respondents are seeking external finance, while three in five have previously offered equity in their business to external investors.
Those surveyed in Japan show a slight disconnect between family businesses and HNWIs views towards the ideal investment formula. Half of the HNWIs surveyed preferred to invest in family businesses, and this was mainly down to the fact that they were interested in imparting their expertise on the business, and voice their opinions. Two out of five family businesses, on the other hand, prefer investors to remain silent.
Although Italian HNWIs don’t seem to have much previous experience with investing in family businesses, the sentiment of those surveyed was in favour of future investments of these types. Interestingly, the family businesses surveyed showed to have much more experience with HNWI investments, with three-fifths of respondents having obtained direct HNWI investment before. These family businesses all viewed the experience as positive as well.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.