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Why family investment groups should look carefully at JAB

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No other family-owned investment group has grown as rapidly as JAB Holding Company has in the last ten years. And no other has hit the business headlines as much. But this week, the first possible cracks in its strategy became public with the departure of its chairman, Bart Becht. Given its profile, private investment groups might want to look closer at JAB to gain better insights into their own investment strategies.

Controlled by members of the German Reimann family, Luxembourg-based JAB grew rapidly in the last few years with a series of headline-grabbing acquisitions. Things like buying the US bakery and sandwich chain Panera Bread for $7.5 billion in 2017, paying  $13.9 billion for Keurig Green Mountain and $1.35 billion for Krispy Kreme in 2016, and $2 billion for UK-based sandwich and coffee shop chain Pret A Manger last year caught the imagination of the deal-making world. Since 2012, JAB has done $49.5 billion of deals. That’s a lot of money even in the institutional deal-making world.

Particularly of interest to other family investment groups are the factors that are likely to have led to the departure of Becht

OK, all these acquisitions weren’t just done with the assets of the Reimann family. Outside institutional and private money, as well as debt, along with the family’s wealth, bought these businesses. So, JAB isn’t a typical single-family office – it gets money from outside investors. Nor are the family members involved directly in running the investment group. JAB is owned by four of the nine adopted children of Albert Reimann, the man who made the money in the first place.

Instead, the public face of JAB has always been a triumvirate of senior partners – the German Peter Harf, Frenchman Olivier Goudet, and Dutchman Bart Becht. They were the ones doing the deals. Although, also behind the scenes is Byron Trott and his investment group BDT Capital, which has invested alongside JAB. Trott has probably had a say on most of the deals since his involvement with JAB started around eight years ago.

But the Reimann family is the biggest shareholders of JAB and likely to have a big say as well. After all, they are the principals of the investment group. Insiders say the family members probably act through Harf, believed to be the one among the triumvirate with the closest relations to the Reimanns. So, in this sense, JAB is very much a family investment group.

Particularly of interest to other family investment groups are the factors that are likely to have led to the departure of Becht. Family Capital’s contacts say Becht, 62, was forced out given he wanted to quieten down the fast-paced acquisition strategy of the last few years, and instead concentrate on bolstering the balance sheets of the portfolio companies. Some of these, most notably the beauty company Coty, have been struggling in recent years.

Whatever is behind Becht’s departure, no business in the world can grow as fast through acquisition as JAB has without problems emerging. As the adage goes: mergers and acquisitions mostly lead to the destruction of value rather than the creating of value.

Perhaps the management roles of the triumvirate began to get a bit stretched given the number of boards they were sitting on. And that may be why JAB also announced the appointment of three new managers with the communication of Becht’s departure. They need more senior staff to handle the strategic and operational side of the portfolio companies.

With the splurge in acquisitions by the family investment world in recent years, private investment groups perhaps need to take a look at their growth strategies in light of what is going on at JAB. To grow a business through acquisition is easy if you have the money, but what is more difficult is to create real value that will last a generation or more. And isn’t that the purpose of family offices – to create value for future generations as well as the current owners?

Of course, the Becht departure at JAB might only be a blip on an otherwise robust strategy at the investment group, and more acquisitions will probably follow. But there’s no harm in family offices to step back and look at their positions in more detail from time to time, rather than always looking for the next big deal.

And there is one other reason family offices should take note of Becht’s departure. He is now free, excluding any non-compete clauses to work with another investment group. Given his experience working with families, and managerial and deal-making skills, the offers are likely to come flying in. That’s if he’s not retiring as the official statement from JAB said…

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