Paul J. Carbone is co-founder and vice chairman of Pritzker Private Capital (PPC), a family-owned investment business that partners with leading middle-market companies in the manufactured products and services sectors. He talks about how family capital can help preserve the legacy of a family business that is being sold:
“Family capital brings the family’s ethos and philosophy to their investments. Family investors take a potentially different perspective when they work with companies with whom they partner. Often, there’s a shared historical experience and a shared family experience. The dynamics of families are not easily understood, nor recognized, by non-family investors. So there’s an immediate sense of trust and understanding when a family partners with a family.
Also, traditional private equity has a duration to it: They must buy and create value, and then create liquidity to do it all over again within the fund’s time constraint. Sometimes that doesn’t allow for deviations from the norm that might be important to the family business.
For example, how family businesses relate to their employees, build teams, deal with communities, and approach philanthropic involvement are all potential casualties when there is no longer a family owner. Family capital partners often respect and understand the importance of those elements to the culture of the business and are willing to reinforce and support those for a flexible duration. Those are elements that allow family investors to honor the legacy of any grandfather’s company: Build on the culture of what was and what made the company great, but still change the trajectory of the business. Family investors can do those things all in concert — they’re not in conflict.
Here’s an example. Several years ago, we partnered with a family business in a small town in the Midwest. They were the largest employer in their town and supported the local YMCA, as well as the annual Fourth of July fireworks festival. We not only supported this community involvement, but we encouraged it as that’s what helped this company achieve the success that it did before us. As we write the next chapter for PPC, we want to continue to honor history and culture; however, we do think that there are ways improve companies while still honoring the prior family ownership.
Our family philosophy and flexible investing horizon allow us to do different things than traditionally structured capital. It’s not because they’re wrong and we’re right; it’s because the business models are different. Traditional private equity is massively successful, but they achieve that success with a different business model than family capital investors.
Not all family business owners value these things. It’s finding those families where your differences are valuable – that’s what creates the advantage. The difference that family capital has, and the limitless potential of what you can do with it, is often very attractive to other family businesses.
