June 21, 2018
Family Offices: Patient Capital Provides M&A Advantage
In recent years, family offices have increasingly become active direct participants in the market for M&A deals. This Nixon Peabody blog discusses a unique feature of “family offices” that can sometimes give them a leg up on private equity funds – the more long-term nature of the capital they provide. Here’s an excerpt:
Traditional sponsors typically have a four- to seven-year holding period that’s driven by the need to deliver a return within that timeframe to their limited partners. However, family offices are able to invest with substantially longer holding periods because their capital does not face the same kind of expiration date, and their investment goals stretch well beyond the next four to seven years.
Often, sellers will have concerns regarding the long-term legacy of the business, retention of the employees and “slash and burn” approach of compromising long-term growth for short-term gains – even when they don’t have a vested interest in the business after the transaction. It is in these types of situations that “patient capital” can play a key role in alleviating these types of concerns.
The blog says that this is especially true in smaller deals, where the sellers frequently are founders or multi-generation family owners As a result of their personal relationship to the business, these sellers often ascribe a greater value to the “intangibles” involved in a transaction.
– John Jenkins