When a business does find a way


to grow, it is not always easy to find the capital to support that growth


According to Jim Burns, head of


KKR’s Individual Investor Business, family businesses do not always realise that firms such as KKR are not looking to exert control when they take stakes in companies. “As I travel around the world, I


talk to people about the report and find that so many are unaware that companies like ours are often times a minority owner,” Burns says. “Previously, they were under the


impression we needed to be in control of


the companies in which we invest, and were not familiar with the alternative financial solutions we provide such as debt, whether it’s senior or subordinated, or growth capital in the form of equity. “We understand many family-owned businesses


want to maintain control and we’re fine with that.” While the high value given to hard requirements


was to be expected, a notable finding was that “soft” requirements—those that go beyond the terms and cost of financing and maintaining control—were key as well. This should not come as a surprise, according to Burns, because “fundamentally we’re in the relationship business”. “From a business standpoint, first and foremost


that person needs to trust you and believe in you. They need to know that you understand what you are trying to accomplish with the business and that you will be there through good times and challenging times,” he says. In the report, 74% of respondents thought it


important that financial partners had a good understanding of the business, while 70% wanted them to add strategic benefit and 68% looked for an alignment of values and objectives. Soft requirements are especially important in APAC.


ISSUE 72 | 2018


As one of the report’s interviewees, a seventh-


generation family business executive from Europe, highlighted, capital providers should have “a long-term approach to our company, with a very clear understanding of our values and what we are all about. “If they fall outside that, we will reject them as


we would any other team member who did not live by our values.” Most businesses continue to rely on traditional


sources of finance such as local and regional corporate banks (85%), retained earnings (78%), and family members (64%). However, non-traditional sources of finance are on the rise, especially in the West, with one-third of family businesses in North America and in Europe increasing their engagement. One-fifth of family businesses are now more involved with venture capital and private equity firms than they were previously. This trend is to be expected. The 2008


financial crisis ushered in a tougher regulatory regime that means banks have become, as Burns puts it, “more challenged” in providing some types of support to medium-sized companies, including family-owned firms. “I am not surprised the private credit business


has grown so rapidly because that is where the biggest opportunity has emerged,” he says. “That is clear in the US and is growing in


Europe and Asia as well. “With regard to growth capital, we are still in


a relatively low-growth world. When a business does find a way to grow, it is not always easy to find the capital to support that growth. There are not that many funds around the world positioned to help businesses to scale. “If you are willing to provide that capital,


you are going to have a number of attractive opportunities to deploy it.” Burns is pleased the report showed companies


which have engaged non-traditional sources of finance were typically happy to have done so. It will, he says, “make the trend faster”. “We are already seeing demand for alternative


sources of capital in Asia and Europe. There is no reason why it should not continue globally. In my opinion, private credit and growth capital will be the types of alternative finance that will be most appealing to family-owned businesses and will grow most rapidly around the world.”


CAMPDENFB.COM 49


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