Family offices as partners in private equity investments
Because Gotshall & Manges
1. July 2015
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.