In the Middle East, family businesses certainly have a well-developed appetite for investment, reveals our Global Family Business Survey. The fundamentals are in place to connect family firms with high net worth individuals (HNWIs) – four-fifths of our Middle Eastern respondents said they are seeking external finance, while three in five said they have previously offered equity in their business to external investors.
Family business owners readily acknowledge the benefits that HNWIs can bring to the business – including sector knowledge and financial compatibility.
“HNWIs are reliable and easily approachable compared to the other sources of finance. Also, we could add on skills to our management through their expertise,” said the CFO of one UAE-based family business.
The finance director of a Saudi business agrees: “Outside expertise can be brought in which can be highly beneficial for our organization and we can develop ‘out of the box [ideas]’ with outside expertise,” he says.
That said, few respondents have obtained investment from HNWIs in the past. The biggest challenge to family businesses in the region is the thorny issue of management interference. All respondents felt that HNWIs would get heavily involved in management decisions.
“There’s a high chance of interference with the management. This is the principle barrier that stops us from obtaining investments from these investors,” said the finance director of one Lebanese company.
HWNIs in the region that have invested in family firms have had positive experiences and all are interested, to varying degrees, in future such investments. However, all respondents state that they would regularly express their views to management. Crucially, though, HNWIs view this as advisory rather than interference.
“I would like to be aware of the businesses movements so that I can help if possible,” said one HNWI. “[However], I would be patient and would let the business leaders take their decisions without interruptions, assuming they have more experience.”
Harish Gopinath, Partner and Head of Family Business, KPMG in Middle East and South Asia, says, “Investment between family businesses and HNWIs in the Middle East is not common mainly due to the perception that HNWIs would want to get closely involved in the management decisions and day-to-day operations of the family business. However, family businesses are seeking external finance and, in addition to financing, connecting with HNWIs can bring about synergies and tap into the knowledge and experience of HNWIs which will enable them to grow to the next level.”
If family businesses and HNWI can agree on the level of involvement as part of the investment plan, then there’s no reason why the two parties can’t reach a mutually beneficial partnership.