Pritzker’s Carbone on why now is a great time for family capital

The Covid-19 pandemic has brought widespread uncertainty to global capital markets. Value has risen to the fore, says a top family office investor. And that’s benefiting family capital. 

Paul Carbone, managing director of Pritzker Private Capital, believes family capital investors and businesses shine out in times of volatility and market upheavals. The operation he runs with its strong family business ethos is well-positioned to thrive from the upheaval, he adds.  

The new transaction debt market is flat on its back, so that’s going to slow down the ability to do majority deals

“This is a period of time, during times of crisis and market volatility when the family business model shows the most benefit,” he says.  “The ability of a family business to focus on the long-term allows it to prioritize the most critical above the expedient. It is this same characteristic which makes family businesses most attractive to family capital providers.”

He adds: “Rather than adopting a defensive posture, some family businesses want to be more proactive in building their businesses in these challenging markets. We are having discussions with families that are looking for a partner and capital to help them take advantages of the opportunities they are seeing. In some cases, we are talking to families that in normal times wouldn’t have entertained a dialogue with outside equity providers.”

Chicago-based PPC, which is owned by Tony Pritzker, targets minority and majority stakes in middle-market companies, most of them founder-owned or multi-generational family-owned companies. Last year, for example, it bought Valicor Environmental Services, a provider of non-hazardous wastewater treatment services in North America. 

Valicor has since gone on to buy smaller businesses in its sector, which is another defining strategy of PPC – to buy businesses which can grow in their sector by making acquisitions.   

The Valicor acquisition and the subsequent ones linked to it personify the values of PPC and how it does deals. There is a cultural fit, which is born out of the two sides getting to know each other beforehand. Both parties have skin in the game, which helps to align the interests of their management teams. And there is a long-term commitment from both parties towards growing the business.

Carbone says these values become even more important in times of crises. 

“In frothy markets, all capital gets washed together, all capital looks the same. It comes down to price and the value of family capital gets lost in the massive waves of capital out there. When capital is more scarce, the frothiness becomes less prevalent, and the value of family capital can shine through.”

Family businesses are looking to bring in outside capital right now, says Carbone. And they like the idea of that capital being owned by families. 

Carbone points to another reason why PPC and family capital is benefitting from the crisis – the lack of capital in primary markets. 

“The new transaction debt market is flat on its back, so that’s going to slow down the ability to do majority deals,” he says. 

“Lenders are dealing with the capital they already have in the ground. They are preoccupied with sorting through covenants and liquidity issues with the capital they already have in the market, limiting their interest in underwriting new debt deals. And you’ve got a secondary debt market that’s pretty active and providing attractive returns. That’s also squeezing out new debt underwriting for the time being.”

He adds: “Without readily available debt financing for new majority deals, minority investments represent one of the few sources of equity capital today. Because we can provide both majority and minority equity, we have the flexibility to take advantage of the open minority market.

“This is another element of what’s going on in today’s market that reinforces what we are doing.”