Cleary Gull

Family to Family: A Growing Investment Model – Part One: Making Connections

Financial advisors walking outside --- Image by © Olix Wirtinger/Corbis

This is the first part of a three part series, exploring how the family to family investment model is working in the greater Milwaukee community.  

Business headlines across the globe have announced a number of high profile investments in family-owned businesses last year. In Europe, Luxury group LMVH purchased luggage manufacturer Rimowa for $716 million, while beverage company Davide Campari-Milano bought Grand Marnier for $760 million. The financial firm Rothschild & Company agreed to purchase Compagnie Fianciere Martin Murel of France in a deal valued at over $250 million. In the US, Rolling Stone sold 49% of their magazine to BandLab Technologies from Singapore. These transactions are notable not for being major acquisitions, as acquisitions can be a natural progression for family firms, but because in each case the investors were other family groups. Furthermore, family-to-family interaction was noted in nearly every case as a critical reason for selecting the particular buyer.

Morten Bennedsen, Ph.D, the Academic Director of the Wendell International Centre for Family Enterprise at INSEAD, explored the unique value represented by these family investment groups around the world. Bennedsen’s research identifies three characteristics which lead to success for family investors:

1. Family Connections – Built up over years, or even generations, connections enhance the access to investment opportunities for a family investment group and may make them more attractive as a suitor in the purchase process.

2. Family Values – A clear set of values allows family groups to ally with those with a similar set of values. This can open doors and result in smooth transitions.

3. Long-term Vision – A long-term commitment to a new investment opportunity is attractive to a seller and allows the family group greater flexibility to realize the full financial value of their investment over time.

Acknowledging this is not an exhaustive list, Bennedsen suggests these features are present in any successful transaction involving a family investment group. Examining how the values and visions of these family firms come together provides interesting context for these attention-grabbing headlines. And, as these family investors make headlines around the world, local family investors are taking similar action in Milwaukee and across Wisconsin.

Making Connections

In Milwaukee there are a number of family investment groups looking to leverage this same family-to-family model to maximize success. One group, Jacsten Holdings, was created by Mike Hansen and Joe Zvesper, who each have helped start, acquire and build firms in Wisconsin for over 20 years. Each also have children who independently developed significant experience in mergers and acquisitions. Today, the joint family investment group looks to make investments in small businesses primarily in the Midwest, with a focus on family-held firms.

That focus developed over time, according to Jake Hansen. “I would love to say we were so smart and so forward-thinking we chose to focus on family-owned business as a strategy from the beginning, but we actually didn’t realize it until after the first deal closed. That process taught us that being a family office differentiated us from other private equity firms.”

That success changed the firm’s approach, he explains, “We’ve now closed on four investments in family-owned businesses. It has become part of our criteria in looking at new deals. We know we can differentiate on that issue and have a greater likelihood of success for all involved.”

The collective experience of the family investment group can be leveraged to further enhance any new acquisition, but the process requires a high level of finesse. As Hansen explains, “We are often on site at least once a week, but we are very careful never to disrupt the chain of command. We’re very involved on a strategic level to help improve the business. Each member of our firm has different strengths and experience, so we bring those to each of our firms as needed.” By sharing connections between the investment group and the existing management team, new opportunities can be unlocked.

These connections can lead to a host of new improvements, but some of the most powerful improvements bubble up from the acquired firm. “Strategic growth often comes from focusing on what the company already does well and then determining how we leverage that strength into new products or new markets,” Hansen says, “The firms we invest in have often been in one family for generations, so they have some of the best ideas on how they can improve or grow, but that process takes time and takes capital. Often the exiting family owner did not want to double down on their risk or their effort by re-investing in the company. We are willing to do that, so some of best ideas for growth actually come from the departing family owners. They help us succeed, which also protects their legacy.” Making these new connections allows a transaction to be a win-win for both buyer and seller.

Watch for part two on “Sharing Values” and part three on “Long-term Focus” as we explore the family to family investment model, which will be published in coming weeks.

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Views and comments expressed in this blog are those of the author and do not necessarily represent the positions of Cleary Gull or fellow Cleary Gull associates.