How Family Offices Approach Direct Investing

In Berlin, Richard C. Wilson speaks outside the Reichstag before a private equity conference, sharing his views after breakfast with a direct investing expert.

Richard C. Wilson discusses family office direct investing, drawing on a breakfast conversation with an expert and his own experience. He describes why it has become a leading area of interest for ultra-wealthy families and outlines ways buyers assess companies.

In this video: Richard C. Wilson (Speaker with the Family Offices Group)

What they said

1. Reasons families invest directly. Richard says direct investing is becoming a top three area of importance for ultra-wealthy families. He points to less trust in public markets and concerns about fund fees, transparency and control.
2. How deal experts get paid. Richard says experts are usually engaged as consultants on individual deals. Their compensation can combine a retainer, a transaction fee and a share of upside through equity or a future payout tied to revenue growth.
3. Commodity purchase deals. Richard describes buyers who focus on revenue, earnings and the earnings multiple, without caring what industry a business is in. He says they may seek a purchase at two or three times earnings.
4. Strategic portfolio additions. Richard says strategic buyers care about how a company fits with others they own. The potential benefit is cross-selling and other advantages across the portfolio.
5. Minority stakes for cash. Richard describes buyers seeking stable, cash-rich businesses and minority ownership. He says those stakes can range from 5% or 10% to 20% to 40%, without requiring the family to run the business.

In their words

"many people who have become ultra wealthy did so because of their expertise and experience within a niche industry"

"so they don't have to run the business but they get cash spun off from it every quarter or every year"

Why it matters if you are building or preserving great wealth

Richard says many wealthy owners want to expand holdings in industries they know well. That gives families a concrete starting point for sourcing deals, since their experience can help them judge businesses before comparing earnings multiples or portfolio fit.