What Family Office Investors Look For in a Business [PODCAST]

Every family office is unique—with its own objectives, strategies, and time horizons. However, if you are looking to attract investment in your business from a family office there are some common themes you will hear in terms of what makes a company a good investment.

Redpath’s Joe Hellman recently explored these with Steve Halverson, a partner at PCM Companies, for an episode of The Transaction Abstract. Steve and PCM focus on investing in founder or family‐owned, multi‐generational businesses with a concentration on companies that do light and specialty manufacturing, business services, industrial products, and distribution.

Listen to the podcast episode below to learn how Steve evaluates a business or keep reading for the factors that get weighed heavily in almost any M&A transaction.

“The hardest thing for us to do is find good quality companies to invest in,” says Steve. He has four recommendations for owners.

1. Really Know Your Numbers

“I think a lot of founders and entrepreneurs have really good gut instincts and know where the profits are coming from,” says Steve. The trouble is that information does not always come through clearly on a company’s financial statements. 

“An investor group is never going to know that business as well as a founder and entrepreneur. You have to be able to articulate to investor groups through data, whether it is out of your ERP system or another accounting system.”

You need to have a good story to tell if you are going to attract investors, but it will only fly if it is backed up by the data. 

Additional Resources:

Guide to selling a business

Guide to buying a business

2. Have a Good Team

“A business that does not have a full team is going to command a lower valuation,” says Steve. He points out that investors will adjust offers down if they know they will need to fill key roles like CEO or CFO after they partner with you.

In general, the leadership of a smaller company has an outsized impact on how well it operates and how profitable it can be. Obviously building a strong team takes time, so if you are an owner thinking that you may want to exit or take on institutional investments in the coming years it is important to start now on getting the right people in the right seats. 

3. Know Your Weaknesses

Every business has some weaknesses. Knowing what yours are and being able to explain them in your story to investors can go a long way in building trust. It adds credibility.

You can provide an outsider with very valuable information about your company if you can direct them toward where you (as the expert on the company) believe they should focus on improving things in the first two years.

4. Know Your Goals

Every business owner has their own reasons to seek outside investors. It is worth taking the time to fully understand yours. This will help you find the right type of partner and structure your transaction in a way that most closely aligns with what you hope the long-term outcome is going to be.

Steve advises owners to ask: “What is it that you want? Are you looking to exit day one and have a team in place that can take over? Or are you looking to find a partner that can provide some financial support and some guidance based on similar things they have seen and done with other businesses? Maybe you are really looking for a partner to help scale the business or are you looking for just the highest and best price? None of those are inherently wrong.”

Steve says it is important for leaders to articulate their goals to potential investors in order to make the overall process a lot smoother.