Publications
Partners
Cape Town - A KPMG international survey found that 58% of family businesses currently seeking external financing to fund their investment plans, found that getting the right strategic investment partner was challenging.
In this story:
- AUDIO: Fin24’s Matthew le Cordeur interviews Alan Barr, managing partner at KPMG Eastern Cape
- SLIDE SHOW: A look at the survey
- PDFs: A look at the survey from an SA and global perspective
“A lot of them are looking for funding to enable them to grow, but they are battling to gain access to funds due to the restrictions and finding the right partners,” Barr told Fin24. “It’s inhibiting that growth, which they need in this current economic environment.”
Limited fundraising options
While family businesses created more than 70% of global GDP, according to the Family Firm Institute,many said they found that their fundraising options were limited.
Private equity funding often required that the entire business had to be sold to maximise the value in the event of an exit, and corporate strategic partners often saw an investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses were not be maximising their growth potential.
Underutilised route identified
KPMG identified one possibly underutilised route for investment with the involvement of high-net-worth individuals (HNWIs), many of which have family business experience as well as significant investment capital. It has been estimated that there are up to 14 million high net worth individuals around the world with around $53trn of wealth.
KPMG said the survey results showed that the top priorities of HNWIs and family owned businesses align, making this underutilisation 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%).
“We found that relations between family businesses and HNWIs in South Africa are exceptionally strong,” said Craig Steven-Jennings, Partner, KPMG in South Africa. “Four out of five family businesses have already obtained direct investment from HNWIs – and all of them were positive about the experience.”
Listen:
SA not looking for silent partners
The survey also found that family firms, in South Africa, were not just looking for a silent partner. All respondents were prepared for investors to offer advice and expertise – even offering a seat in the boardroom in one case.
“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,” said Christophe Bernard, KPMG’s global head of family business.
Other key findings of the survey include:
- 44% of HNWIs have previously invested in a family business and the vast majority (95%) said that it has been a positive experience in comparison to their other investments.
- More than three-quarters of survey respondents (76%) said that the family held a majority stake in the business.
- 60% of HNWIs were looking for investments with reasonable risks and reasonable returns, and were focused on long-term capital appreciation. Both of these traits were well matched by investment in family businesses.
- While there were challenges on both sides, Family matters: Financing family business growth through individual investors revealed that both family businesses and HNWIs had an appetite for investment and could prove to be highly compatible partners.
View:
- Fin24.
