Business

SPACs and private equity funds look to shake up Europe’s family businesses

Two deals in the last week involving European family business are precursors to the fate that awaits many in the sector as they look for much-needed capital from private equity funds and even Special Purpose Acquisitions Companies. 

This week’s announcements by fashion brands Ermenegildo Zegna, which plans to use a SPAC structure to go public, and Etro, selling out to a private equity fund, show the appetite among investors for family-owned businesses in Europe has risen. 

Investment bankers and private equity managers have always prized family business assets, particularly those, as Family Capital recently said, owned by third-generation and later founding family members. Likewise, outside investors like them because of their often steady revenue streams, lack of debt, and potential to develop their brands in other markets. 

But that interest looks to be growing for several reasons. On the buy-side, many US investors, particularly PE funds, are weighed down by cash and looking to invest in new markets. Many European assets look relatively cheap right now, and US investors see the potential to buy companies and accelerate their brands in other markets. 

On the sell-side, family businesses in Europe need to raise capital to grow their companies in new markets. They look at the Zegna/SPAC deal and other similar ones and see the family can remain in control with a majority shareholding, but raise funds to expand and potentially pay off any family member who no longer wants to be part of the family business.

SPACs, although facing much greater regulatory scrutiny in the US, are another reason why European family businesses are considering raising capital in public markets. This is because SPACs offer them a less expensive and bureaucratic way to list than a traditional IPO for family businesses. We wrote about this early this year. 

Another factor in all of this is the gradual demise of China as an investor in Europe’s family business sector. Geopolitical tensions between China and the West is a big reason why Chinese investors are less interested in western businesses. 

But the Chinese have probably also got want they want in terms of technology transfers from the European companies they bought before these rise in tensions. And with China competing less for these assets, US investors see even more opportunities. 

European consumer brands, many family-owned, look particularly enticing. “The opportunity to develop these brands in the US is a big reason we are looking at European assets right now,” says a principal of a US-based family office who wanted to remain anonymous. His family office has already had success in this area, and he wants to duplicate it with other acquisitions.

Of course, not every mid to big-sized family business in Europe will be so keen to sell their equity to investment bankers and private equity managers. Scepticism of outside investors, particularly from what is often perceived as sharp-suited investment bankers and private equity managers, is still prevalent in the sector. 

 

But many family businesses will be keen to bring in outside investors. That just might create a sell-off in the sector never seen before. 

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