A family office can be described in many ways and it can take many forms, from a modest, one-person operation to a separate, multi-staff set-up with a mix of internal and third-party advisors at their disposal. KPMG defines it as an “‘ecosystem’ that a family builds around itself to get organized, manage their assets and enable them to enjoy their lifestyles”.*

The concept of a single-family office, family office, or private office generally denotes a hybrid entity of best practice that continues to reinvent itself, much like competitive marketplace firms. The main difference is fiduciary as family offices tend to be private and oriented towards preservation, even if that means a more concise record keeping of the spending of one’s fortune. One of the main components of a successful family office is the central value of administration and observation.

The media and press paint a colorful picture of family offices (FO) as a billionaire’s private office, hardwired to generate obscene profits and take on unregulated risks for the sole benefit of increasing the fortune. They also suggest family offices are merely management hubs to combine the oversight of trust funds and private jet bookings, and that the management office is managed by prototypical ivy leaguers, Oxbridge males, or a set of grand écoles educated analysts in Geneva, playing with billions beneath rotating priceless art. While this has some truth to it, family offices are no longer just for royal households, plutocrats or billionaires. There are many more comfortably rich and moderately wealthy families in the world than there are billionaires.

A Family Business as a Natural Path to Start a Family Office

Throughout the book “Global Family Office Investing” I discuss family businesses and that is for a few reasons – a successful family business is the most organic way to start a family office. It is a natural progression to see a family business transform into a family office; over time the family business may no longer suit the family members and the business is sold resulting in a cash influx. Families are a core element to our security and mental stability. Apart from familial love, money does much of the same.

When you combine the two you should have the utmost in safety, security and fortification with a tinge of dysfunction. A family that talks money and manages money often stays in the money. To keep it in the family, as the old saying goes is much more to remind us of where life comes from: families that stay the course are studies in succession and transition; discipline and luck; evolution and dignity. Regardless, the simple fact remains, most of the billions are created not overnight and not in one generation but in a succession of generations. With luck, a well-planned family office can not only provide family members with income and stability but can help future generations achieve success in their chosen fields.

The Structure of a Family Office

Today, a global family office is available to anyone who decides to establish a family office entity. Over the past decade, technology has levelled the playing field to such that forming a family office is very easy. Most offices begin as a reporting unit, an advisory unit or an office in a family business, and most begin with the success of a family business or generational wealth created by a family member which is then unified around a cohesive plan.

A family office by nature is a long term investor and they should not suffer from a fear of missing out on investments and trends. One of the key differences between someone on the street and a family office is a long term plan that is well defined and well protected. If that plan calls for aggressive investment tactics, usually the aggressive tactics are piled into an appropriate vehicle, or perhaps the family sets up an alpha driven hedge fund. Family offices have certain mandates and so funds will be allocated to particular asset classes and ventures, versus a flow of blind investment.

If you have questions about your family business or looking for investment opportunities, please contact any of our M&A Principals for a non-obligatory call. You can book a call here.

*Source:
– Excerpt from Global Family Office Investing by Chad Hagan (Palgrave, 2021).
– The Emergence of the Family Office

*Image from Pitchbook

“The new big-money status symbol of 2020 is running your own blank check company. Hedge fund billionaire Bill Ackman has a new one. Oakland A’s executive Billy Beane, who was played by Brad Pitt in the film Moneyball, got into the game with an initial public offering in August. Even former U.S. Speaker of the House Paul Ryan is getting one going.” – Crystal Tse, Bloomberg Businessweek (Aug. 27, 2020)

 

“Unlike conventional private equity investors, SPACs are not reliant on high yield debt to do their deals (although they may make use of leverage or offer shares as well as cash by way of consideration for an acquisition). In the absence of significant inflationary pressure, they are relatively immune from falls in share prices generally, as the value of their cash trust fund does not diminish in a falling market (which may enable them to get more for their money).” – Westlaw

SPACs as a Third Way to Go Public

Often, SPACs and Special Purpose Vehicle (SPVs) hold funds for investment or distribution. To start, here are a few mechanics behind SPACs and SPVs. When an SPV is treated like a SPAC, and is not utilized for the purpose of holding sequestered or reserved funds, SPACs pay up to 5% on the money it raises to the book running the bank.

At this moment in economic history – long-term interest rates and the COVID pandemic – SPACs are being seen as a third way to go public. As of late, Silicon Valley luminaries Peter Thiel and Reid Hoffman have joined in the SPAC boom.

“When a SPAC completes its IPO, usually 100%, but in no event less than 90%, of the funds raised are held in escrow to be released either upon completion of a business combination transaction, or back to shareholders in the event a transaction is not completed within a set period of time. A SPAC business combination must have a market value of at least 80% of the value of the amount held in escrow at the time of the agreement to enter into the transaction. Shareholders that object to the business combination have the right to convert their shares into a pro rata share of the funds held in escrow. A SPAC generally has 24 months to complete a business combination; however, it can get up to one extra year with shareholder approval. If a business combination is not completed within the set period of time, all money held in escrow goes back to the shareholders and the sponsors will lose their investment.” – Laura Anthony, Esq.

What does this mean for the market?

Apart from SPACs and SPVs reverse merging with private companies, we are likely to see a plethora of cross-border M&A activity for a variety of reasons.

SPACs are almost always utilized to pool money together for an acquisition company or blank check company. In most aspects, particular 2020 funds are utilized to acquire a concern and then list the company through the SPAC as an asset and or entirely change the name and structure of the SPAC into the target company. Recent examples include DraftKings, Nikola and Virgin Galactic.

Going public is an exciting time for many business owners and investors, but the IPO market is cyclical, and at times can ground to a halt.  On the other side, a SPAC is relatively quick, requires much less interaction with the banks and investors, and has a certain element of price certainty.

Transaction Readiness

In our many years of deal work, we found that there are some clients who are keen to engage in a trade sale or capital raise but are simply not ready or clients are keen to understand what they would need to do to be ready for a transaction in a year or two.

This work commonly involves reviewing the history, business model, management and financial accounts, board practices and records, staffing, corporate structure, any existing transaction marketing materials, forecast financial models and other items and areas that may come up in discussions:

• Evaluating potential buyer positions and developing tax and financial scenarios to help maximize after-tax proceeds;
• Preparing a strategic and competitive industry-based market assessment Identifying, assessing, and supporting potential revenue and cost synergies Preparing, populating, and managing data rooms and buyer information requests;
• The degree of transaction readiness we find in the business, including discussion and recommendations on gaps and issues that may be uncovered;
• Summary of the Owners’ available options (fundraising, listing, sale) and our view on the appropriateness of each;
• A discussion of the existing transaction marketing materials and any recommendations for improvement.

If you would like to discuss your corporate and capital market options, please contact us at Eaton Square for a confidential discussion. You may book a call here.