Published: Sep 25, 2014
Source: Khaleej Times


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Middle East HNWIs can strategically invest in regional family businesses

But despite family businesses creating more than 70 per cent of global GDP, many say they find their fundraising options limited and finding the right strategic investment partner can pose a challenge. 

According to leading global tax, audit and advisory services firm KPMG, nearly 60 per cent of the world’s family run businesses are struggling to find external finance to fund investment with 58 per cent of family businesses currently seeking external financing to fund their investment plans.

But despite family businesses creating more than 70 per cent of global GDP, many say they find their fundraising options limited and finding the right strategic investment partner can pose a challenge.

Fawzi Abu Rass, head of Family Groups — KPMG Lower Gulf, said: “Most successful family businesses are built over successive generations during which time the family’s control and leadership of the company becomes complete. Today, many family businesses acknowledge the need for outside influence and this usually leads to the incorporating of non-family members into the company board but the struggle to find external funding from HNWI still remains.”

KPMG has identified one possibly underutilised route for investment with the involvement of high-net-worth individuals (HNWIs), many of whom have family business experience as well as significant investment capital. It is estimated that there are up to 14 million HNWIs around the world with around $53 trillion of wealth, a significant number of which are based in the Middle East. 

According to the survey, the top priorities of HNWIs and family owned businesses align, making this underutilisation surprising. HNWIs name long-term capital appreciation (37 per cent) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23 per cent).  

“This report has revealed some important misconceptions on the sides of both family members and HNWIs. Education and awareness on the potential benefits of partnerships has emerged as the first and key step to break down some barriers,” Christophe Bernard, KPMG’s Global Head of Family Business explained.

He added: “Private equity funding often requires the entire business to be sold to maximize value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximising their growth potential. While there are challenges on both sides, we believe that family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.”

Key findings of the survey:

44 per cent of HNWIs have previously invested in a family business and the vast majority (95 per cent) say that it has been a positive experience in comparison to their other investments.

More than three-quarters of survey respondents (76 per cent) say that the family holds a majority stake in the business.

60 per cent of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.

KPMG partnered with Mergermarket to survey 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.

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