Cleary Gull

Family to Family: A Growing Investment Model – Part Two: Sharing Values

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

This is the second part of a three part series, exploring how the family to family investment model is working in the greater Milwaukee community. A number of high profile investments in family-owned businesses last year were notable because the investors were other family groups. We talked to Milwaukee-area investors with a similar model. Part One: Making Connections, explored the first of the three characteristics Marten Bennedsen identified as being critical to successful family investors. We now focus on the second characteristic – connecting with local companies around a shared set of values.

A frequent refrain in the sale of a family-held business to another family investment group is the alignment of values. Compatible values surface in many ways during both the transaction and the transition. Mike Hansen, co-founder of Jacsten Holdings notes how transactions require a “leap of faith” between both parties, and a group that promotes family values can create certain advantages and establish trust in early negotiations. Hansen reflects, “We generally don’t get a price advantage, because every seller expects a fair price. But we might get one more conversation, before a decision is made, because the seller realizes we are interested in preserving their family legacy and taking care of their people. I believe the owners from whom we buy businesses do not want to be known in their own hometown as the person who sold out for the last dollar to a new owner who shuts the plant down or flips the business quickly due to a fixed investment horizon.” This trust allows for conversations to start from a less adversarial perspective.

Trust between parties is critical throughout negotiations. “There are always conflicts that arise in the negotiation process. We run into conflicts as well, no different than anyone else,” Hansen admits, “But when the conflict arises, I think sellers feel like they can trust our intentions.” This cultural fit is driven by both buyer and seller possessing a clear understanding of the ways family and business cultures interact. The approach of the buyer may be more consistent with the existing owner and is often built on a deep respect for the family legacy. An alignment of values requires a family investment group to have a clear understanding of the values they want to project in all phases of an acquisition.

A focus on values is central to the approach of another local family investment group, the Kaztex Companies, formed after the sale of the family-owned company. As Michael Kasdorf explains, “My involvement in the family office has made me very cognizant of my responsibility to make wise choices with our investments. Our internal values must line up with the values of any potential partner or acquisition target—our view goes far beyond a financial metric or profit target.” The family operates a private charitable foundation in conjunction with its for-profit activities, making value-alignment paramount in all the investments they consider.

According to Kasdorf, “We actively ask ourselves what kind of family we want to be and what values we embody. We want to be very intentional about telling our family story and inviting others to join us on the journey and share in the legacy.”

The synergies between the family investment group and the newly acquired firm may also allow a fresh examination of the business value created by the firm. Kasdorf explains, “We want to start by defining the value proposition for all people involved in the business, not just for the customer. We have to know why people want to work here. Many small businesses get caught up in the whirlwind of the day-to-day operations, understandably so, and don’t find the time to assess the issues of higher purpose. We help ask these questions and bring a new frame of reference.”

Synergies between parties allow for a balance between appreciating a firm’s current culture, while being open to new perspectives. By sharing a foundation of similar values, a family investment group may be in the best position to ease the transition to new ownership.

Watch for part three on “Long-term Focus” as we continue to 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.