Family Office Deal Flow Nuggets
www.arrivatollc.com – As a family office ourselves, we see a lot of opportunities – as both principals and as a consultant to bring together alignments of interest within our relationships. And being a part of multiple inner circles within the Ultra-High Net Worth environment, we tend to share a lot of deal flow, strategies, and mechanics of how we evaluate opportunities.
From our perspective, we review a lot of opportunities ranging from entities who cannot secure debt from banks, do not want to work with banks, need mezzanine capital, or seek a strategic partnership. When you are within circles that collectively deploy large amount of capital, lots of people come out of the woodwork to share deals.
Earlier this week, I was among a closed group of 11 global UHNW families and family offices to get together, trade thoughts, support various strategies, etc. As an example, one of our friends will begin deploying $50 million early this summer, which became a topic of our discussions to provide support towards identifying opportunities, how he should review different opportunities.
Let me share a handful of perspectives we commonly discuss when reviewing deal flow, whether it is us or any other UHNW family office. Unlike friends and family investors or High Net Worth investors that people often mistaken as family offices, there is often a sophisticated manner that our discussions take on.
Who is the General Partner (GP) or Partners? What is their track record or what I like to say, what have they accomplished as a principal in the past several years? If they are co-partners, what is the governance between the parties – i.e. how do they make decisions, determine accountability?
How did the deal find us? If it did not come directly from the principal, how did it reach an intermediary, what is the context of their relationship? How do they expect to be compensated? Typically, we see our most credible deal flow from a small network of colleagues who we have an existing relationship. Over the next several days, we have two groups traveling to visit us from long distance to establish a trust. This is often underrated today.
How much capital is the GP contributing to the transaction? What true alignment of interest are they bringing to the transaction? And beyond the capital, what are their daily operational capabilities and track record?
Where is the value play? In real estate, it might be deferred maintenance or poor asset management. In manufacturing, logistics, distribution, or product businesses, it could be an established company that needs stronger strategic leadership and fresh capital to scale to the next level. In reality, we are always looking to identify pragmatic value creation and tend to avoid strategies created through financial engineering.
What are the returns? While track record of the principals and risk factors carry substantial weight during the first conversation – whether it moves beyond the first level is determined by the returns or whether the expectations of a financial model are aligned with UHNW family money. While family, friends, and High-Net Worth investors are excited to invest in great ideas…Ultra-High Net Worth Families look for the alignment of interest and compelling reasons to become a strategic partner or issue a loan.
Here are some other nuggets to consider in the Ultra-High Net Worth Environment:
Proposals tend to go into an email inbox and out just as quickly if there is no relationship with the recipient. This is why we see a lot of opportunities because we are part of the inner circles and have the relationships on a personal level. We all have a very tight network of trusted professionals we accept most of our proposals from.
Expect to hear a lot of the word or variation of the word “no” quite often. We say the word “no” a lot. We all generate more revenues saying “no” a lot. It is a fact of reality. A typical family office might only make 3 – 4 investments per year. Just imagine how many times we say “no” among those 3 or 4 yes responses per year.
As Ultra-High Net Worth family offices, we all tend to be very discreet and respectful of an opportunity…unless there are circumstances where our buttons are pushed.
Our money is treated a lot differently than others. This means proposals and most importantly, the people behind those proposals, are treated to intense due-diligence. We cannot understate how important due-diligence is for families.
In summation, we bring together strategic partnerships on a regular basis within our inner circles. We welcome you to contact us if you would like to discuss your options for attracting a strategic partnership or regarding a specific transaction, or the discreet disposition of an asset. We will be happy to have a confidential discussion with you.