Definition
A family office is a private organisation set up to manage the wealth of one family (a single family office) or several (a multi-family office). Many invest directly in private businesses, either buying them outright or backing other buyers. Because they invest the family's own money rather than a fund with a fixed life, they can often hold a business for longer than a private equity firm and be flexible about how a deal is structured.
Worked example
The Fenwhistle family office is a fictional investor in South Africa. It backs an experienced operator buying Sunbird Engineering Supplies, a fictional South African business, for R60,000,000.
The family office provides most of the equity and holds a majority of the shares. The operator invests the rest, holds a minority stake and runs the business. There is no plan to sell within a set period. Instead, the family office expects regular dividends and a seat on the board.
Why buyers care
As a co-investor, a family office can offer patient equity to search funders, independent sponsors and first-time acquirers, which suits businesses that need time rather than a quick exit.
As a competitor, a family office may appeal to sellers who care about the long-term future of their business and their staff, so it can win deals without paying the highest price.
Each family office has its own preferences on sector, control, dividends and reporting. Before you rely on one, ask who makes investment decisions, how long approval takes, and what involvement they expect after completion.
A search fund is a way for an individual or pair of entrepreneurs to raise money, find one business to buy and then run it as chief executive.
An independent sponsor is a dealmaker who finds and negotiates acquisitions without a committed fund, then raises equity from investors one deal at a time.