3 questions to smart minds

Family offices as partners in private equity investments

For this 3 questions to Dr. Christian Tappeiner

Because Gots­hall & Manges
Photo: Dr. Chris­tian Tappeiner
1. July 2015

Family offices are incre­asingly reco­gni­zing the oppor­tu­ni­ties offe­red by direct invest­ments in compa­nies and are redis­co­ve­ring private equity as a form of invest­ment. The market is very open to these inves­tors, and their entre­pre­neu­rial credi­bi­lity and often long-term orien­ta­tion are appre­cia­ted. In addi­tion, family inves­tors are also often open to mino­rity invest­ments. Are they chal­len­ging the private equity funds?

For this 3 ques­ti­ons to Part­ner at Weil, Gotshal & Manges in Frank­furt a. Main

1. What conside­ra­ti­ons do family offices face when making private equity investments?
When it comes to invest­ments in private equity (= PE), family offices are faced with the ques­tion of whether they want to take an (even) more active role in the future. Family offices that have alre­ady inves­ted in private equity have mainly inves­ted in private equity funds or as co-inves­tors toge­ther with a private equity fund. Incre­asingly, we see family offices in the market looking to acquire majo­rity stakes in compa­nies. This increa­ses the importance of family offices in the M&A / PE market. Howe­ver, family offices are also more in the spot­light and have to bear the grea­ter respon­si­bi­lity this entails.
2. How do family offices differ from other private equity investors?
Family offices are very diverse with some­ti­mes very diffe­rent invest­ment objec­ti­ves. Family offices, which operate in a simi­lar way to private equity inves­tors, have the advan­tage that they are subject to insti­tu­tio­nal cons­traints to a lesser extent. The level of return and the execu­tion of an exit is ther­e­fore less important. The decisive factor is a long-term, secure invest­ment with stable returns. Over­all, family offices are very flexi­ble in the selec­tion of their invest­ments. Family offices, for exam­ple, also invest in niche areas where a reasonable return can be expec­ted, even if the market for the product is rela­tively small and ther­e­fore an exit would be difficult.
3. What is the signi­fi­cance of the growing number of family offices for the German M & A market and the private equity sector?
Family offices are incre­asingly compe­ting with private equity funds. This will lead to a further revi­val of the M&A market in Germany as addi­tio­nal inves­tors appear on the scene. Howe­ver, this also means that private equity houses have to consider how they want to respond to this compe­ti­tion. Due to the tendency of family offices to expect lower returns, higher purchase premi­ums can tend to be paid. There are also advan­ta­ges in the need to finance the purchase price, which many family offices do not require. Over­all, the deve­lo­p­ment can be seen as very posi­tive, as the German M&A market is further stimu­la­ted by the incre­asing importance of (direct) invest­ments by family offices.

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