Family offices are increasingly active in the acquisition market. They classify themselves more often as potential buyers because of their long-term investment horizons. We see a trend of formalization, structuring and professionalization.
JBR Corporate Finance in Zeist is increasingly engaged as an acquisition advisor and sparring partner. In this article you will read about the challenges, opportunities and trends of Family Offices.
Single, multi-family or virtual family office
Family Offices have the goal: to relieve the family and advise them in various areas such as asset management, legal and financial. The form of a Family Office depends on the size of the family's capital and their short- and long-term needs.
A Single Family Office represents the interests of one family, provides customization, privacy and independence. However, a Single Family Office is often expensive due to the costs of staff, an office, ICT and other support. Staffing is the largest cost of these.
To reduce these costs, many families choose to join a Multi-Family Office. Multi-Family Offices offer services for multiple families. They are usually established by professionals, responding to the demand for a middle ground between Single Family Office and wealth managers or banks. More and more banks now have dedicated departments for (Multi) Family Offices. A bank offers economies of scale with broader services, but often at the expense of customization.
In a Virtual Family Office, all of a family's professional (external) advisers work together under the direction of a coordinator, but there is no physical office, hence "Virtual." A Virtual Family Office provides customized services and incurs costs only when services are used, on the other hand, advisers' availability is uncertain.
Experience stories
We ask some commissioning Single Family Offices about their (conscious) choice to operate in this form and the advantages and disadvantages they experience. This reveals that families like to remain in control and that customization is of great importance. Typically, they invest in segments close to the origin of family assets.
One family of a Single Family Office indicates that their growing portfolio requires professionalization of the team and other expertise to diversify into other segments. This is difficult in practice: "Besides being difficult to find good staff, it also involves high costs. We are therefore now making more use of external advisers to remain flexible."
What are the advantages of Family Offices as investors? They focus on long-term investments. As a result, there is more emphasis on the partnership between the business and the investor and it is important that the vision of both match. In particular, we see a growing interest in Family Offices as investors among family businesses looking to sell or attract investment.
One of our clients explained this as follows: "The hands-on mentality, entrepreneurial spirit and commitment of the family behind the family offices we spoke to appeals to us greatly. We see that they value the history of our business and the importance of maintaining it."
Challenges
However, some considerations must be made by entrepreneurs when it comes to cooperating with Family Offices. For example, they often have a strong ideal that is difficult to deviate from. This can lead to disagreements over policy after an acquisition. In addition, Family Offices often focus on investments in familiar segments where they themselves have built up their capital, therefore investments in niche markets are less attractive.
Timing and professionalization
Family Offices generally believe they can act quickly, but in practice this is sometimes disappointing. External "specialists" are often called in (too) late. Out of convenience, the choice quickly falls on the in-house lawyer to draw up the SPA and the in-house accountant for the due diligence. The reason for this is usually to save costs and the idea of having sufficient expertise. Unfortunately, this sometimes leads to missed opportunities and increased risk in investments. We advise to always consult an (M&A) specialist with the right sector knowledge. Fortunately, we see a clear trend of professionalization at Family Offices.
