Business

As the pandemic continues to rage there is rising hope among family enterprises

Protagonists say interest rates below zero are providing an incentive to embark on deals, along with depressed property prices, low wages and the availability of technology to boost the strength of brands. One said: “We’ve all become bored with doing nothing, and there are lots of people who are reviewing their businesses, and deciding it might be time to sell. “

The improvement in sentiment over November is marked. Gains have been made in the stock market by small company and value styles which also tend to drive family concerns.

Many operate in tight niches and provide their owners with livelihoods who, in return, provide them with time, money and effort in hard times. 

The Russell growth index in the US is up 2.4% in a month, against a 7.8% gain for Russell value and a 10.3% hike for the Russell 1000 small cap index. US housing starts rose by 4.9% in October, well ahead of expectations. 

Inflation is also starting to move ahead, as a growing demand for goods in certain sectors begins to impact on supply. Government intervention has boosted job retention. 

UK family office Souter Investments recently bought into a data capture technology called Likezero, previously owned by PwC, and an environmental business named ClimateCare. It is cautiously optimistic on prospects and keen to tackle further deals.

Berwick-based family business Simpsons Malt has added a supplier in Scotland by buying WN Lindsay. Ranjit Boparan’s food group 2 Sisters has sold part of Fox’s business to the Ferrero family. The Hoffman Family of Companies have bought water sports businesses to add to their leisure interests in Florida.

Bankers and lawyers say the latest batch of deals reflect a sharp improvement in sentiment which was taking place before vaccines were announced. Businesses are increasingly willing to take a forward view of revenue, where they can gauge the impact of Covid-19. 

It is harder to see a way forward for troubled companies in real estate and hospitality. The smallest outfits have particularly struggled and landlords are suffering massive rent arrears.

Analysts say arguments have erupted within families on who should bear the pain of corporate restructurings. But agents point out that retail entrepreneurs are in a better position than earlier this year, and seeking opportunities. 

Shares in Mike Ashley’s Frasers Group in the UK are up a third in a month. It increased its stake in luxury goods group Mulberry to 37% on November 19, and considering a bid. 

On balance, pain is more than matched by opportunity. Insolvency practitioner Paul Cooper of David Rubin & Partners says: “The demand for distressed assets and opportunities caused by  challenging economic conditions is high, with significant cash resources available for the right deals.”

A private banker based in the Benelux region said he expects more deals: “We act for about fifty family offices. Only one of them, maybe two, are facing problems due to the pandemic.”  

He pointed out the families behind businesses are more inclined to provide them with funding than commercial owners because their approach is long-term.

According to a survey by BanyanCapital during the pandemic, family businesses have been concerned by short term revenue losses during the pandemic. But few had concerns about their long-term future. 

Nearly 70% of family businesses felt confident they would keep control of their companies. Following a review, Souter realised its businesses would remain well-positioned in May.  The continuing investment in venture capital opportunities during the pandemic illustrates confidence among family offices during the pandemic which has improved further.

According to Jose Maria Liberti of the Kellogg School of Management, family businesses are protected by their diversity and long-term approach, which can produce lateral thinking when deals fall available.

Credit Suisse compiles a database of 1,000 family businesses. It includes cash-rich big tech companies, like Alphabet and Facebook, which lack second generation representation. But its list does confirm strong balance sheets and cash flows, along with three percentage points of outperformance against other companies over the half-year to June.    

Family Capital influencer Craig Aronoff, co-founder of Family Business Consulting Group, says family businesses differ enormously.

Many operate in tight niches and provide their owners with livelihoods who, in return, provide them with time, money and effort in hard times. 

Other family businesses take advantage of the kind of diversification, innovation and financial performance embraced by other corporations. 

But they can all benefit from the personal commitment of families dedicated to the preservation of their businesses.  Where businesses have emerged from Covid-19 in decent shape, families can also execute deals at a speed which few commercial enterprises can match. 

And this represents a window of opportunity for them to seek acquisitions before others start to bid up prices.

According to David Rubin’s Paul Cooper: “Their speed of decision making among family businesses is often quicker. They can be more agile and commercial, although there can also be differences of opinion.”

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