The interaction between private equity and family assets is becoming more complex. More and more family businesses are open to private equity structures and use them as a welcome source of entrepreneurial income. On the other hand, family offices are increasingly assuming the role of private equity investors and investing in other companies. The increased overlap between private equity and family assets has a positive effect on both areas. In spite of the shared success story, however, cooperation does not always run smoothly.
The private equity investor is naturally a temporary owner. In addition to the strategy of the target company and its implementation, a clearly defined exit option is always crucial for him. Ideally, the latter should be clearly defined at the initiation of each investment. The sale of the entire company is often at the centre of a private equity investor’s exit strategy. The investment horizon of entrepreneur families with dynastically managed assets, on the other hand, is long-term and often extends over several generations. In negotiations between entrepreneurial families and private equity investors, the intended exit often proves to be a considerable hurdle. Family businesses also have to prepare for the exit when an investor enters the business and make arrangements for possible exit scenarios. As a compromise solution, so-called evergreen structures and industrial holding companies are perceived, which also invest on a long-term basis and hold investments for more than 20 years. As long as they consider themselves to be the best owner, there is no reason for such investors to sell an investment.
The question of the most suitable owner, on the other hand, is only raised by the fewest family offices. It is often difficult for decision-makers to adopt the perspective of an outside private equity investor. In contrast to private equity investors, family office investment projects do not focus solely on returns. The investment behaviour of family offices is often influenced to a large extent by the family and is therefore quite individual. For example, some family offices pursue an investment strategy that is specifically geared towards meaningful social commitment, others operate as business angels or invest primarily conservatively in areas that are subject to slow development and may be less risky. In order to achieve these return-independent investment goals, some family offices even actively forego growth and value enhancement.
However, the different investment behaviour of family offices and private equity investors is not just a matter of attitudes: it is also difficult for family offices to adopt the thinking and working methods of a private equity investor because they lack the necessary capacities to do so. Last but not least, for tax reasons, family entrepreneurs tend to be reluctant to sell an investment and, in this light, prefer to invest on a long-term basis. In the case of long-term investments, it is important to master the so-called generational leadership change and take appropriate precautions at an early stage. An investment project is also always dependent on the management personnel. With a long investment term of 20 years or more, a generational change must be carried out at both management and consultant level, which must be supported by the entrepreneurial family.
If a family business exists over several generations, the number of family members usually increases. In such constellations, by far not all family shareholders are part of the company management. This increasingly creates an emotional distance to the company. The focus of the family shareholders is then more on the question of how to deal with the available capital. This development also encourages the willingness to critically question whether the entrepreneurial family itself is still the best possible owner of the interest in its own company. If the shareholders come to the conclusion that this is no longer the case, they are also more willing to take new paths in the use of capital.