A major obstacle to the establishment of partnerships between family businesses and high net worth individuals (HNWIs) is the matter of finding one another. As proved in KPMG’s (RC) 2014 Global Family Business Survey, there are family businesses looking for investors and HNWIs looking for good investments, but in the absence of fortuitous personal connections, third-party introductions or other ways of linking with one another, partnerships cannot be formed.
In addition to sourcing potential partners, there’s the challenge of finding the right partner. As one French enterpreneur said, “It’s quite challenging to find a suitable counterpart who shares the same philosopy and working methods, that’s why the availability is minimal.”
There is clearly a need for establishing effective ways of bringing (mutually suited) family businesses and HNWIs together.
Key to a HNWI and family firm’s compatability is the issue of governance. Being given the chance to have a presence on the board is very highly valued by HNWIs. The family business survey suggests that this may well often be possible – 30% of firms said they would be willing to offer a board seat in return for investment.
However, the issue of control is a more contentious one. While the potential to acquire a majority stake is ranked as the second most important deciding factor for HNWIs, nearly all family businesses surveyed say they wish to maintain ownership and control.
The business factors most likely to attract HNWIs are high profitability and the potential for strong organic growth, foci that reflect their goal of long-term capital appreciation and desire for medium-level risk. These are followed by strong cash flows and high solvency in terms of importance.
HNWIs also perceive the issue of obtaining an equity stake as a barrier to the formation of partnerships with family businesses (the fourth biggest hindrance, in fact, according to the family business survey). Yet in reality, this is not necessarily an obstacle, as our findings from the survey suggest that many firms would be willing to offer an equity stake for the right investor.
Perhaps unsurprisingly, the possibility of conflict and disagreement among family members was ranked as the most significant factor that could discourage HNWIs from investing in family businesses. “If a family deals emotionally rather than practically in a situation, it means there will be conflicts, which would restrict them from meeting their goals. This would highly discourage me to invest in a family business,” said one Canadian enterpreneur.