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August 13, 2020
Family offices are generally weathering COVID-19’s investment impacts well, with many taking advantage of 2020’s market dislocations and volatility—using the opportunity to rebalance their portfolios. Making direct investments in private companies remains an important strategy for family offices and high net worth investors, especially as public market valuation multiples look historically rich.
Family offices are typically focused on the long game with an emphasis on preserving generational wealth. These desires often dovetail nicely with the needs and wants of family-owned businesses whether they need a new brand steward to continue their legacy or patient capital to provide liquidity and balance sheet strength.
Despite the current market uncertainty, we have found that family office investment activity remains robust and represents a sizable source of potential capital for middle-market businesses.
Each family office has its unique strategy for direct investing in private companies, but a common theme is an affinity for the added level of control this type of investment affords.
Beyond the attraction of working with businesses where they can add value, direct investment also allows family offices to:
Family offices often have added flexibility in their investment mandates, allowing them to take on a broad range of structures, from minority investments to full buyouts, depending on the sophistication and size of the family office team and the target company. This is interesting to many company owners who may be reluctant to execute a full sale in the current environment.
In the eyes of company management teams, the big differentiator setting family offices apart from their private equity counterparts is their patience.
Based on our conversations with local family offices in the Northwest, many continue to be interested in private company investments at reasonable valuations and are actively pursuing deals.
As family offices mature, they often become more risk-averse and focus on capital preservation and philanthropy. Generally speaking, the families behind these investments care deeply about the communities in which they are investing. They often have deep roots in a particular geographic region and a desire to do right by the people in the area they call home.
Our team regularly works with family offices, including sharing direct investment opportunities. These opportunities may be through an investment banking process, or through Cascadia’s Private Capital Group, the in-house merchant bank.
Family offices often work with investment banks due to the benefits we can provide, including diligence, company marketing materials, team bandwidth, and the structure the bank can bring to a transaction process. They can also work to generate their own direct investment opportunities through their existing business networks.
Bloomberg LP reported that more than a third of family offices increased their cash reserves in 2019 in anticipation of economic headwinds in 2020—a prediction that is continuing to play out. As market volatility continues, they are watching and ready to invest in favorable opportunities. These family offices can serve as a viable alternative to credit for businesses in need of capital.
There are many positive attributes to partnering with family offices, and Cascadia’s relationships run deep—an important consideration given their tendency to operate behind closed doors.
Please reach out to our Private Capital Group using the contact information below if you would like to learn more about trends impacting direct family office investing or discuss topics of value to your clients and contacts. Learn more about our Private Capital Group here.
Continuing with our “What’s Now? What’s Next?” series, we’re highlighting our team’s insights within two sub-verticals gaining traction amid broader economic headwinds. Click the stories to read more:
Our team is available to discuss the above or other relevant trends with you as you navigate the current landscape with your clients. View our bankers’ contact information on our team page or browse bankers by industry here.
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