‘Family businesses struggling to find external finance’

AMMAN — While family businesses create more than 70 per cent of global gross domestic product,  many say they find their fund-raising options limited,  a new international survey revealed on Sunday. 

According to a KPMG press statement received by The Jordan Times,  58 per cent of family businesses are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging.

Hatem Kawasmy, the managing partner of KPMG in Jordan, said in the press statement: “Private equity funding often requires the entire business to be sold to maximise 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,” he added.

KPMG has identified one possibly underutilised route for investment with the involvement of high-net-worth individuals (HNWIs), many of which 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.  

Survey results show that 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).   

“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs,” Christophe Bernard, KPMG’s global head of family business explained in the statement.

Another key finding of the survey shows that 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.

Additionally, 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," the survey concluded.

KPMG in association with Mergermarket, surveyed 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.