This market offers family businesses a multitude of alternatives to selling your company.
You are a family business owner. You continue to see the stock market appreciate, and you read about M&A activity and valuations being at a cyclical high. You likely have a number of friends who have sold their business, and hear from them about the available financial rewards that come with a peak market. You love your business, but you are not ready, or interested, to sell the company. Maybe you are just still having fun. Maybe you see upside in your business and believe transacting now would be selling yourself short. Maybe you are in the midst of a succession plan for the next generation, and you want to see that through. Maybe you are concerned about the impact of a sale on your employees, or even your legacy.
Whatever your situation, you can rest assured that there are a variety of potential strategic alternatives to consider short of a complete sale of your business. We have found that many Pacific Northwest family businesses are not aware of all the range of alternatives available to them, mainly due to the fact that most of the capital for these other options does not reside in our region. While there is a wide range of bank debt capital available in the Pacific Northwest, there are very few private equity firms (less than a handful in the Pacific Northwest, yet nearly 6,000 nationally), mezzanine debt firms (none in the Pacific Northwest, yet hundreds across the US), or family offices (again less than a handful established and active family offices locally, yet thousands nationally). International options also exist. Interest in our region has in fact never been higher due to the strength of our economy, workforce, and the “Amazon effect” that has drawn a wide range of investor interest in the Pacific Northwest from all over the US and internationally.
You may ask how could these options really work for my situation? Private equity is a solution that works well if you see value in a partner to help expand your business, make acquisitions, migrate your business globally, or other important strategic moves where you may need or want value-add and assistance. There are many "flavors of ice cream" in private equity, minority or majority, active vs. passive, operational vs. financial focus, industry specialist vs. generalist, etc., so you will want to ensure that you examine the right fit for you and then target the right type of private equity firms. Mezzanine debt, or other similar non-bank fund debt solutions, can provide you with growth or liquidity capital, importantly without taking on a partner (mezz debt often takes no board role, or sometimes a board observer role, whereas private equity always requires a board position and often control). Mezzanine debt also does not light the fuse on an eventual sale or exit, as it typically does not include equity (or if equity is included it is usually warrants for a small percentage that you can pay off in cash when you refinance or pay off the debt). Family office is the most flexible capital source, as they can provide equity, debt, or a mix of both, and are very open to minority or majority positions. Family office usually takes a much longer time horizon in their investments (7-10 years+), whereas private equity is typically 3-5 years, and mezzanine debt typically 4-5 years.
So how could you get started to explore and consider the range of strategic and capital alternatives available to you? All of these options come with trade-offs that need to be considered before any action, including with your legal and financial advisors, as well as your family. You will not want to engage in external dialog until you have evaluated the options, narrowed down what you would and would not be open to, considered the use of capital (growth, liquidity, or a mix), and have a position on the terms upon which you may be willing to take on capital. However, there are options, and for many family companies they are worth considering—if not exploring—if only to make a fully informed decision to continue on your current journey.
Christian Schiller is a managing director with Cascadia Capital, with over 20 years experience advising family businesses on a wide range of strategic alternatives including M&A, equity capital, debt capital and family office capital. Christian can be reached at 206.436.2554 or cschiller@cascadiacapital.com.