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Research project: access to private equity in family owned firms

A three-year research project has examined the factors influencing the ability of family owned firms to access private equity funding.

Dr Chris Graves, who conducted the research in collaboration with Dr Pi-Shen Seet with support from a CPA Australia grant, says that the research suggests that owners of family firms would benefit from knowing more about private equity funding.

“Many family firms don’t make it past the third generation because of a lack of available or suitable successors,” says Dr Graves, the University’s Head of Accounting and Information Systems.

“That leaves the option of either selling or closing the business.”

“Given the volume of business owners looking to exit in the next five years, it is anticipated that most can’t look forward to a traditional trade sale exit and will have to explore an alternative succession strategy such as private equity funding.

“This type of funding could give family business owners a way of extending the life of their business, allowing for growth and a staggered sale.”

However, previous research has suggested that many owners of family firms are not open to private equity funding.

“There’s a finance gap, where a fear of losing control limits the family’s openness to outside funding,” Dr Graves says. “On the other hand, we determined that some private equity firms believe that family firms have an economically flawed business model and aren’t willing to engage for this reason.

“There’s also a knowledge gap in that many family firms don’t know enough about private equity funding to consider it a viable option,”Dr Graves adds. “In the same vein, private equity firms have a lack of understanding about family business dynamics and what’s important to family businesses.” Dr Graves says that accountants and financial advisers can play a significant role in closing the gaps. “Our research determined that accountants in particular are the biggest advisers to family firms,” Dr Graves says.

“It places them in a privileged position when it comes to educating family businesses about private equity funding, and it’s important that they are aware of the benefits so that they can help their clients navigate the impending succession crisis.” Maintaining the presence of family firms, says Dr Graves, is vital given the significant role they have played in building our social and economic fabric.

“The influence of family firms in Australia and internationally is huge,” he says. “Think of family controlled firms like Rothschild, Fiat, News Corporation, Coopers Brewery, Yalumba Wines, Haigh’s Chocolates and Rossi Boots – they have become icons.”

“And more importantly, family firms play a significant role in building our economy. Research has shown that a successful transfer preserves, on average, five jobs, whereas a start-up business generates on average only two jobs.”

With the University’s Dr Jill Thomas, Dr Graves launched the Family Business and Education Research Group (FBERG) last year. The group promotes family business research, engages in family business education and interacts with the family business community to disseminate information.

Latest developments from the group include Dr Graves’ appointment to the board of International Family Enterprise Research Academy (IFERA) and the introduction of a family business course in the University’s MBA and the Bachelor of Commerce.

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