Tying the knot between private equity and family business

Tying knot between private equity and family business

Find out the role that private equity plays in family business. Learn about the variety of different applications that a private equity investor could have for a family business seeking growth opportunities.

Alan Barr

Partner, Head of Family Business

KPMG in South Africa


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Family businesses, like other companies, are often in search of financing to propel growth. As a family grows and changes, the family business must also evolve to accommodate changing family dynamics. The future of the family members, maintaining the independent nature of the family business and the preservation of family unity depend on the growth of the family business and its capacity to generate sufficient profit to all its members.

The term private equity refers to shareholder capital invested in private companies, as distinguished from publicly listed companies. Private equity funds are generally investment vehicles that invest in enterprises, which are not listed on a public stock exchange. An enterprise may seek private equity financing for a variety of applications, from increasing its working capital base in times of business expansion, to developing new technologies and products in order to grow and remain competitive, to making acquisitions of other businesses and buying out certain shareholders in order to restructure the ownership and management of the business.

At a recent Family Business conference in South Africa, Michael Rudnicki, Head of Private Equity at KPMG in South Africa together with representatives from a variety of private equity business discussed the role private equity plays in family business. The points that stood out were:

  • The role of private equity investments by private equity funds into businesses hold great benefits besides the introduction of capital. Private equity investors have a considerable impact in terms of productivity, skills development, national competitiveness and job creation, as it includes the transfer and exchange of know-how and not only the flow of capital.
  • Private equity fund managers play an active role in managing their investments into companies as they derive a return from the increased valuation of their investments (not just debt repayment and an associated interest rate) and hence they focus on governance and business development for the companies they invest in.
  • In South Africa, the private equity industry represents a significant sector within the overall financial services industry, and an attractive asset class within the broader capital markets.
  • Many family businesses are their own worst enemy. Their desire to maintain full control over their company often limits their financing options. For them to grow and increase their profit, they need strong financing and this process could involve private equity or corporate strategic partners, but these limit or reduce the family business owner’s control over the business.

Alternative sources of funding other than private equity funds include the banking institutions, High Net Worth Individuals or Family Offices (quasi-private equity). For more information about the Family Business conference in South Africa or advice regarding fund growth, please contact Alan Barr (email:alan.barr@kpmg.co.za).

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