Walnut Ridge CEO and Managing Partner Mike Moran says what a family office brings to the equation in a transaction is by design different than what an owner might get from a private equity firm and from a strategic buyer.
"We're kind of that middle," Moran says. "And what I like to think of as the best of both worlds."
Private equity firms will bring institutional capital raised from a collection of limited partners that has timeline associated with it. They, generally, raise money over five years, invest that money, and over five years harvest that money, return that capital and then raise a new fund and redeploy it.
A strategic buyer tends to buy companies and integrate them into their platform. So the acquired company is either an extension to a business of the buyer or is a new business unit for them. They're optimizing off some infrastructure and centralization that they bring to the table and other market reach competitive advantages they have.
From the Walnut Ridge family office perspective, one differentiator is that their capital is permanent.
"It's ours and so we don't have any outside restrictions or benchmarks we need to meet besides those that we impose upon ourselves," he says. "So, we can invest alongside and really focus on building a great business. We can own it forever. We can trade it in the market. We can do whatever makes sense for the business. And I think that's a fundamental difference for what happens."
Sellers considering a partnership with a family office should first ask themselves what support they need day-to-day? Do they need someone in the trenches? Or do they want somebody that's just a silent investor? Do they want a sounding board that's got operational savvy?
It's also a question of what they owner is trying to accomplish with the transaction, whether the investor can help achieve that goal, and how long the owner wants the relationship to last.
Owners should also be clear on their vision before choosing a partner — understanding what's important to them. And not just growth and wealth creation, but aspects such as legacy and the continuation of the owner's vision.
"Family investors are not always going to be 25-year investors, but they can be," he says. "And I think that's the real decoupling here is to say, I want somebody that, no matter what, I know will build a great business and the transactions, if they happen whether they happen, happen at the right time given the nature of the company, not because of the underlying needs of the shareholder. And I think that's the real differentiator."
Moran spoke on the Smart Business Dealmakers Podcast about the pros and cons for sellers partnering with a family office, how family offices differ from other options, and what life is like for owners post-transaction.