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Taking a Counterintuitive
Leap of Faith
 

Capital and Opportunities Abound for Healthy Family Businesses

 

TRUE OR FALSE:

  • Commercial banks are no longer interested in making loans, having over-committed capital to nonperforming loans.
  • PE sources have little or no capital to commit to new investments.
  • With the current financial and economic uncertainty, this is a poor time to strengthen a family business’ global competitive position.
 

If you answered “true” to any of these assertions, you’d be mistaken!

It may seem counterintuitive, but economic uncertainty and financial restriction may spell opportunity for healthy family businesses. As much of the business world feels paralyzed as they wait and see what will happen next, strong, smart and bold family businesses are able to access capital from commercial banks and PE sources to fi nance investments and acquisitions that would strengthen their global competitive position.

First let’s look at the current lending environment. Given their recent experience, banks are going back to traditional practices of lending to healthy corporations that have the proven ability to repay the loans. Strong family companies are prime targets for commercial banks in today’s environment.

Second, consider the private equity market. Flush with healthy levels of investible capital, PE sources continue to seek new investments that generate attractive returns without excessive high leverage. With fewer attractive investment opportunities available today, private equity sources are becoming increasingly flexible with the terms and structure of such investments.

 

Many will consider joint venture deals and acquisition financing that only require a minority position. Isn’t this a great time for a healthy family business to seek capital from the private equity market either to gain liquidity or make new investments?

Concerning the third notion, about whether this is a good or bad time to enhance your company’s global competitiveness, several clients have expressed concern about the diffi culty to “bargain shop” for overseas acquisitions given the weaker dollar and reluctance of foreign banks to fi nance such transactions. While this may be true, we believe this is an opportune time to seek U.S.-based investments and acquisitions that would strengthen the company’s long-term global competitive position. Instead of growing horizontally to increase global market share, we recommend exploring vertical acquisitions that will strengthen the company’s niche. The idea is not to get bigger, but to become stronger. What is the company missing today that would make it more competitive globally in the long-run?

Competitiveness is not defined in terms of size or market coverage, but in terms of depth of product and service content. Therefore, one should define

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