‘Family Matters: Financing family business growth through individual investors’
Wednesday, 24 September 2014 00:00
KPMG launches Global Family Business Survey: results show that the top priorities of high-net-worth individuals and family owned businesses align
KPMG in association with Mergermarket, surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investments from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
The KPMG International survey has found that 58% of family businesses are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging.
While family businesses create more than 70% of global GDP, many say they find their fundraising options limited.
Private equity funding often requires the entire business to be sold to maximise value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximising their growth potential.
KPMG has identified one possibly under-utilised route for investment with the involvement of HNWIs, many of which have family business experience as well as significant investment capital. It is estimated that there are up to 14 million HNWIs around the world with around $53 trillion of wealth. The survey results show that the top priorities of HNWIs and Family Owned Businesses align, making this under-utilisation surprising: HNWIs name long-term capital appreciation (37%) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23%).
“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs,” Christophe Bernard, KPMG’s Global Head of Family Business explained. “By breaking down some of these barriers, KPMG’s Family Business professionals can help clients to build better business partnerships, encouraging increased collaboration between these two groups across the globe for their mutual benefits,” he concluded.
Other key findings of the survey include: 44% of HNWIs have previously invested in a family business and the vast majority (95%) say that it has been a positive experience compared to their other investments.
More than three-quarters of survey respondents (76%) say that the family holds a majority stake in the business.
60% of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.
The main factor that would deter HNWIs from investing in family businesses is the possibility of conflict among investee family members.
Lack of availability and limited information on the opportunities is another main factor hindering HNWIs from investing.
While there are challenges on both sides, Family matters: Financing family business growth through individual investors reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
Thamali Rodrigo, the Partner heading the Family Business Division of KPMG in Sri Lanka stated, “A well managed family who owns a business will be attractive to any investor. I’m proud that KPMG is committed to working with families who own businesses to break down the barriers which hinder success and the factors that create conflicts among family members, enabling them to lay a strong foundation for success”.
“The fascinating results distil the essence of what potential HNWI investors look for, and their value to family businesses. Having interviewed the entrepreneurs directly, we really dived into the core of the subject matter without distorting what HNWIs expect and how they operate. Wealthmonitor is proud to have opened the doors to this highly sought after segment of the market,” explained Florian Pixner, Managing Director EMEA of Wealthmonitor, part of the Mergermarket Group.
To view the survey results, please visit:http://www.kpmg.com/familybusinesssurvey/.
KPMG is one of the largest professional services firms in Sri Lanka and is also the oldest Chartered Accountancy firm in the country counting a history spanning over a century since inception in 1897. The firm has large practices in audit, tax and advisory areas and provides services to over 1,100 client organisations in Sri Lanka including some of the largest middle market clients in the country. As part of KPMG’s commitment to working with family businesses, the firm hosted a workshop earlier this year focusing on ‘Governance in Family Businesses’ providing a valuable ‘outside’ perspective on business issues, but without losing sight of the family interests and aspirations that are driving the enterprise.
The Family Business Division in Sri Lanka, which is headed by Thamali Rodrigo, Partner, KPMG in Sri Lanka, is set to embark on its next knowledge sharing initiative in October focusing on succession planning. The event will be conducted in collaboration with ACCA featuring family enterprise specialist and Senior Manager, KPMG in Germany, Dr. Alexander Koeberle-Schmid. He will be in Sri Lanka to address family owned and managed businesses which make a vital contribution to the national economy.