44 per cent of HNWIs have previously invested in a family business and 95 per cent says that it has been a positive experience in comparison to their other investments.
ET 11 Sep, 2014, 04.36PM IST
While globally bank loans are still hard to obtain, for a large majority of India's Family Businesses, banks continue to be the chief source of funding says a latest report. According to a new KPMG International survey titled Family matters: Financing family business growth through individual investors, 9 out of the 10 respondents interviewed, were upbeat about bank financing and bank debts continue to be the main sources of finance.
KPMG says as substantial lenders, banks in India still maintain an approach of largely mortgage and personal guarantees and have not moved sufficiently towards business model and cash flow-based funding. Further interest rates continue to be high, ranging from 12 percent to 18 percent and making it difficult for family businesses to service interest comfortably. This has meant participation and investments though avenues like crowd funding, angel and venture funding and high net-worth individual funding.
Banks have often been the prime source of funding for Family Businesses as private equity funding, according to KPMG, often requires the entire business to be sold to maximize value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximizing their growth potential.
According to the KPMG report the reliance on bank financing in India is probably due to the fact only a fifth of respondents have obtained financing from HNWIs. Those who have done so rated their experience as generally positive.
It is estimated that there are up to 14 million High Net Worth Individuals around the world with around $53 trillion of wealth . Survey results show that the top priorities of HNWIs and Family Owned Businesses align, making this underutilization surprising - HNWIs name long-term capital appreciation (37percent) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23percent).
KPMG says in India one of the main obstacles appears to be the perceived level of executive involvement from HNWI investors with 8 out of 10respondents saying HNWIs would interfere with the management. On the other hand in India, the future for families and HNWIs working together looks bright as 8 out of 10 HNWIs said they were interested in investing directly in family businesses.
"Building trust and transparency will significantly change the way HNWIs and Family Business collaborate to build strong businesses of the future. Promoters have to overcome the perception about HNI Investor interference in business and be open to constructive challenge and better transparency. Family business will benefit from HNW investors who are more amenable to temporary blips in financial performance and open to medium to long term support," the report says.
KPMG says as substantial lenders, banks in India still maintain an approach of largely mortgage and personal guarantees and have not moved sufficiently towards business model and cash flow-based funding. Further interest rates continue to be high, ranging from 12 percent to 18 percent and making it difficult for family businesses to service interest comfortably. This has meant participation and investments though avenues like crowd funding, angel and venture funding and high net-worth individual funding.
Banks have often been the prime source of funding for Family Businesses as private equity funding, according to KPMG, often requires the entire business to be sold to maximize value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximizing their growth potential.
According to the KPMG report the reliance on bank financing in India is probably due to the fact only a fifth of respondents have obtained financing from HNWIs. Those who have done so rated their experience as generally positive.
It is estimated that there are up to 14 million High Net Worth Individuals around the world with around $53 trillion of wealth . Survey results show that the top priorities of HNWIs and Family Owned Businesses align, making this underutilization surprising - HNWIs name long-term capital appreciation (37percent) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23percent).
KPMG says in India one of the main obstacles appears to be the perceived level of executive involvement from HNWI investors with 8 out of 10respondents saying HNWIs would interfere with the management. On the other hand in India, the future for families and HNWIs working together looks bright as 8 out of 10 HNWIs said they were interested in investing directly in family businesses.
"Building trust and transparency will significantly change the way HNWIs and Family Business collaborate to build strong businesses of the future. Promoters have to overcome the perception about HNI Investor interference in business and be open to constructive challenge and better transparency. Family business will benefit from HNW investors who are more amenable to temporary blips in financial performance and open to medium to long term support," the report says.
Exploring synergies
On a global level the picture is not very rosy. The study shows that nearly 58 percent of family businesses are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging. While family businesses create more than 70 percent of global GDP many say they find their fundraising options limited.
"From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs," KPMG Global Head of Family Business Christophe Bernard said. "By breaking down some of these barriers, KPMG's Family Business professionals can help clients to build better business partnerships, encouraging increased collaboration between these two groups across the globe for their mutual benefits," he added. Other key findings of the survey globally include:
--44 percent of HNWIs have previously invested in a family business and the vast majority (95 percent) says that it has been a positive experience in comparison to their other investments.
--More than three-quarters of survey respondents (76 per cent) say that the family holds a majority stake in the business.
--60 percent of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.
While there are challenges on both sides, the report reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
KPMG in association with Mergermarket, surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
--More than three-quarters of survey respondents (76 per cent) say that the family holds a majority stake in the business.
--60 percent of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.
While there are challenges on both sides, the report reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
KPMG in association with Mergermarket, surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
No comments:
Post a Comment