There has been a lot of buzz about club deals being done by family offices, writes CampdenFO but they are not happening as much as it might seem. The feature article says the rationale for club deals for direct investment is compelling: wealthy families can avoid paying fees to asset managers whose performance they are not happy with.
A club deal spreads the risk between family offices, and such deals offer greater transparency and potentially greater alignment. They can often be a good way to get emerging market exposure.
But the ability to find a profit-making operational business requires good contacts and knowledge in an industry. CampdenFO says one is example is the family office of Brian Souter, a Scottish entrepreneur who founded Stagecoach, has been investing in transport businesses including bus and ferry firms.
He had an exit recently of an investment in the yacht-maker Sunseeker (highlighted in the photo above). It was acquired by China’s Dalian Wanda Group, according to research by your Dealmarket Digest editor.
Another example given is Mike Lynch (he is the British founder technology company Autonomy acquired by HP in 2011 for USD 11 billion) who has created Invoke Capital, a EUR 1.2 billion fund to provide venture funding to technology start-ups.
One of the biggest problems is deal sourcing, acording to the article. The family office needs to have a large network and be “tapped into good businesses and good people that run businesses”.
Some family offices have the advantage of being run by active entrepreneurs who tend to have leads into the deal market, but the ones that are second or third generation and quite large and have employed people to run the family like a fund of funds for the families may find it a bit harder, says the report.
To get the deals an investment in marketing telling the market that you are looking for deals is necessary. All this has led to some teams emerging that source deals, do some due-diligence and legal work, and then run them afterwards as a GP, such as Penta Capital or Chrystal, basically GPs that invest a pledge fund.
Furthermore, the deals are sometimes difficult to execute because leadership is not clear. There is no standardized blueprint for doing club deals, and most family offices are just not set up to do it, says the report. A large one might only have 15 to 20 people on the investment team and not have the resources for labor-intensive one-off deals.
Too many investors in a club deal make it cumbersome and complex and the seller may get impatient with having to deal with a number of investors instead of just one GP, says the report. (Image Source: Sunseeker website)