M & A:
Family Offices Bypass PE Firms

Door with key

Family offices are now investing directly in privately held companies and bypassing private equity funds.


Family offices are making the break from investing in PE funds.  Instead of investing in private equity funds, they are investing directly in privately held companies.   This trend is clear to us, and we work regularly with family offices that are in search of portfolio companies and add-on acquisitions.


Family offices don’t have to restrict themselves to a limited investment mandate like PE does, and they can be more flexible in their thinking.  They don’t have a time horizon they have to live by, and they don’t have to use leverage. And some don’t, or do so modestly.


The financial engineering skill set possessed in the private equity world used to be confined to PE firms.  Now they are fairly widely distributed.   And with the economic downturn, talent is available for hire.


Still, it takes something special to be able to pick and grow winning investments in private companies.   Some of the family offices have it.  Many family offices came into being because the patriarch or matriarch had a company that they built themselves.  This skill set is still intact if the head of the office is the founder.  This is less true once the second, and certainly the third generation of trust fund babies take hold of the reins (or don’t).


The move to independence from Private Equity is just part of why PE is in a transition.  Among the PE firms, there are have’s and have not’s, with the have not’s suffering from insolvencies and poor performing companies in their portfolios that preclude them from raising another fund.  Their talented people exit when they see a lack of a future.  The fund manager hangs on for dear life trying to maintain a heartbeat in his zombie companies which by now are the only things that make up his zombie fund.  He keeps them alive so that he can earn his management fees.


Privately held middle market and lower middle market companies considering a mergers and acquisitions transaction, or a capital raising transaction, may find that a family office suits them well.  They are patient money, understand private company ownership, and bring skills to the table that can make everyone wealthier.  And they will consider a minority stake where many PE firms require control or outright 100% ownership. To learn more, contact us

by Charles Smith

Charles Smith is the founder of Pegasus Intellectual Capital Solutions, a boutique investment bank specializing in mergers and acquisitions, Capital Raising and restructuring and workouts. The firm is an innovator in the use of Intellectual Capital Audit for pre-closing due diligence and in turnarounds. Charles can be reached at csmith@pegasusics.com