Family offices emerge as force in middle-market M&A

One of the bigger M&A trends this year is the emergence of family offices in auction processes, said bankers at PartnerConnect Southwest 2015.

More and more family offices are competing in M&A auctions against private equity and strategics, executives said. In one case, a family office has won three of the last four deals it participated in, a banker said during a December 1 panel discussion about deal flow.

“Family offices are looking at transactions like sponsors,” said panelist Andrew Rabin, a JP Morgan Chase managing director. “They’re being sponsors.”

Alternative investments have gained more acceptance among family offices in recent years as they look for ways to enhance the yield on their portfolio with the current low interest rates, said panelist Bill Murdock, a senior managing director at Comerica Bank. “They see ownership of companies as a way to do this while still being a reasonable risk profile,” he said.

Family offices didn’t want to compete in auctions 20 years ago, [but] now they’ve become private equity teams,” said panelist David Santoni with Lazard Middle Market.

Executives pointed to Highlander Partners LP, which they said has become a force in M&A. Dallas-based Highlander makes private equity and mezzanine investments throughout North America, according to the firm’s website. The family office has more than $1 billion in capital under management, the website said.

While they make act like sponsors, family offices approach M&A differently. Family offices tend to lever transactions a “bit more conservatively” than private equity firms and will sometimes put in more equity or pay a bit less, said Murdock of Comerica. Family offices also have longer hold periods than private equity firms and are more willing to keep management teams in place, executives said.

Santoni said when he sees a family office win an auction, his first thought is: “Great, they won’t sell the company again.”

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