Topic: Westport, CT

Subject: Family Office Direct Investments and Their Impact on the PE World
Jim Collins
Member: 2015
Posts:3
Submitted on 11-16-15 9:09 am
Message:

Association for Corporate Growth – Connecticut Chapter


Monthly Breakfast Meeting - 11/6/15


 “Family Office Direct Investments and Their Impact on the PE World”



The Connecticut Chapter of the Association for Corporate Growth (ACG-CT) is comprised of  300 local professionals focused on middle-market corporate growth (i.e.: mergers and acquisitions, financing opportunities, business development, joint ventures, licensing arrangements, etc.), including a diverse group of private equity funds, intermediaries, lenders, and service providers.


Topic of Discussion:  Family Office Direct Investments and Impact on PE World


Mark Campbell, the President of ACG Connecticut, and a Partner at the accounting firm, BlumShapiro, hosted the event.


Moderator: Mike Archer, Partner - McGladrey


Panelists included:


David M. Schneider, Partner - 3K Limited Partnership


Brad Scholtz, Partner - Scott Capital


Richard T. Dell'Aquila, Managing Director - Brookside Equity Partners


 


Here’s Jim Collins’ summary of the panel discussion:


What are the contrasts between Family Offices (FO) and Private Equity (PE)?


Families are trying to find direct investments to avoid fee structures of PE, and they are wary of investing in blind pools.


It’s harder today to find acceptable yields and higher IRR.


PE’s have an average 5 year holding period.  It’s a challenge and a lot of work to turn over assets for an FO.  FO’s usually have fewer resources to accomplish this.  Families are also more patient, looking for longer term investments.  Families are also more concerned with tax implications, while PE’s are more focused on cash flow.


“Time” and “timing” are the biggest differentiators between PE and FO’s.


The privacy and confidentiality of FO deals resonates with many sellers and sometimes makes FO’s more attractive to the sellers.


FO’s think differently about deals, since they are usually investing their own money.  This makes them more conservative.


FO’s tend to avoid controversial industry sectors such as firearms and tobacco.


FO’s tend to “over-equitize” their deals compared to PE’s.


Some families have the Warren Buffet approach – “If you have a great company and a great management team, why would you ever want to sell that asset?”


There is a potential pitfall in FO organizational design if the principals are also operating partners and engage in “Hobby Investments”.


FO’s tend to take less/no ongoing fees from their portfolio companies, as opposed to PE’s that extract a % of quarterly EBITDA.


What are the potential disadvantages of Family Offices


FO’s are more generalists and may not have specific expertise in the industry or functional experience (i.e. Lean).


While the FO’s long term approach at their investments may be attractive in one respect, it works against owner/operators that want to cash out and retire at their defined point in time.


FO’s are usually “Unicorn Hunting”, looking for that perfect investment.


Are FO’s buyers or sellers in today’s market?


Given the current high valuations, FO’s tend to be sellers.


Current multiples are at 8x.  “8 is the new 5!”


Some FO’s, such as Scott Capital, are buyers more than sellers because they have well performing portfolio companies and don’t want to sell them.


There are still opportunities at 3-4x multiples, but harder to find.


It was noted that there is $1.7 Trillion on the sidelines in both PE and FO, and that may be contributing to the high multiples.


In some of the FO deals, they try to take public companies private, or “go dark”, so they don’t have to be subject to the scrutiny of quarterly K’s & Q’s, as well as people shorting their stock.


When portfolio companies get up to the $10MM EBITDA threshold, they often get on the radar screen of strategic investors and PE’s.


When the management team calls the FO’s and say it’s time to sell, the FO’s know it’s time and they sell.  FO’s aren’t in any position to run the portfolio companies themselves.


FO’s try to manage their intellectual capital.  They don’t make a direct controlling $10MM investment because it is too small and it consumes too much intellectual capital (IC).  That type of investments consumes as much IC as a non-controlling $40-50MM investment.  FO’s like to have 60-80% controlling interest and they stay away from minority investments, where they are only along for the ride.


 

 
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Replies
Scott Piskin
Member: 2015
Posts: 1

Subject: Re:Family Office Direct Investments and Their Impact on the PE World

Submitted on 01-18-16 3:25 pm.
Message:

Jim,


 


thanks for recap of the Family Office breakfast.


where else, within FENG would you suggest   I focus as one experienced within the "Private Family Office" niche?


 


Scott 

 
Jim Collins
Member: 2015
Posts: 3

Subject: Re:Family Office Direct Investments and Their Impact on the PE World

Submitted on 01-18-16 11:01 pm.
Message:

Hi Scott,


Thanks for the acknowledgement.  Regarding your question, I would recommend you consider attending one of the monthly ACG monthly breakfast meetings, as I did.  I've attended several with the intention of networking with private equity attendees.  As you can see, the subject of the last meeting I attended was regarding Family Offices.  Matt usually sends out emails announcing these monthly meetings in the CT chapter, usually held in Stamford. He provides a discount code for us to use.  There is a "Family Business" SIG in the FENG, which could include Family Office business, but it is a dormant group.  Perhaps one of the best things you could do is search for Family Office "alumni" in the FENG web site, who you could contact and set up networking meetings.


Hope that helps,


I sent you a LinkedIn invite.


Regards,


Jim Collins

 
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