Over the past few years, a new and very active buyer community has emerged: The Family Office. Although technically family offices have been in existence for several hundred years, their growth and acquisition activity has increased dramatically over the past 10 years or so.
We have discussed family offices a few times over the years but a recent article in Bloomberg News has shed new light on how FOGs (Family Office Groups) operate and why they have become a very active source of good buyers for potential sellers of privately held companies.
Entitled, “How New Wealth, Few Rules Fuel Family Office Boom”, the article had several key pieces of information that owners of privately held companies should be aware of.
First, until a few years ago, most FOGs did not invest directly into businesses, preferring to provide capital to equity firms to do the investing. However, over time many have realized that in order to reduce the management fees associated with investing in equity firms, that investing directly makes more sense.
This is especially true if the FOG, and the family funding it, has direct experience in the past in a particular industry. Keep in mind that many family offices were born out of a family business years and years ago. The generational expertise that they can bring to a transaction can be substantial.
In addition, the article identifies that what makes the FOG universe difficult to court as a buyer is that they are extremely secretive regarding their funds and what they are interested in investing in. However, it is estimated that they have a substantial amount of capital available.
An estimate by researcher Campden Wealth put the figure at $4 trillion globally, larger than the entire hedge fund industry. But it’s hard to say for sure. Families tightly guard the extent of their wealth and very few public records are available to track their assets. Single-family offices are generally exempt from registering as investment advisers with the U.S. Securities and Exchange Commission, and therefore don’t have to disclose their owners, executives or how much money they manage.
And there is a direct correlation between the amount of capital with FOGS and the recent dramatic growth of billionaires:
Estimated Number of Billionaires Worldwide Annually:
Data: Credit Suisse Global Wealth Databook; graphic by Bloomberg QuickTake
As the number of mega-millionaires and billionaires has exploded, the use of family offices has spread to Silicon Valley entrepreneurs, private equity stars, Russian oligarchs, Middle Eastern oil families and newly minted tycoons in Asia. There are more than 10,000 single-family offices globally, at least half of which were started in the past 15 years.
The last point that I bolded above is really amazing – at least 5,000 FOGs have been started in the last 15 years alone!
Based on conversations I have had with FOGs, unlike equity firms that usually have a timeframe of 5-7 years to “flip” an investment, FOGs have much longer hold horizons; in many cases, the family office plans to hold the investment for decades or even longer.
This can be very attractive to business owners who are interested in their company’s new owner maintaining the legacy that the family has built over the years. So the longer hold time, coupled with the expertise that a family office can bring to the table, makes them very attractive potential buyers for many owners considering their exit plans.
If you are going to approach the market without the aid of a professional M&A advisory firm, be sure to add FOGs to the buyer list you are going to be creating as they have become a wonderful option for many sellers to approach. The challenge you will face though is that, given the secrecy that they operate under, finding the optimal FOG for your opportunity will be a challenge.
Unless you have access to M&A research tools, or if you have 34K registered buyers like we have, they can be tough to find (especially if your business is operating in a narrow industry niche).
A great place to start your exit journey is by attending a Generational Equity executive M&A conference. We hold these complimentary, highly-educational meetings throughout North America and attending will probably be the best investment of your time in years. To find a conference near you, or to learn more about how to optimally exit your business, please use the following links:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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