Much like other institutional investors, family offices continue to shift significant shares of their assets from public markets to real estate and private equity. Affluent families also show higher rates of investing in middle market companies. These buyers differ from other buyers in several important ways. Understanding these differences can help sellers more intelligently navigate the sale process.

The time frame is longer

PE firms typically hope to exit their investments within five to seven years, while family offices often hold them much longer—often for decades. This longer term perspective changes how they evaluate companies, and encourages them to hold companies to compound value without facing capital gains taxes.

They are actually multiple entities

A single family office is usually a complex cocktail of many different trusts and entities, each with its own financial history, cash flow needs, and sometimes culture. Each office may also work with different family members. Intergenerational conflict is common; so too are the different perspectives dramatized on shows like Succession.

They have strong feelings about their home industry

Family offices usually either love the industry in which they initially made their wealth, or wish to doggedly avoid it. This emotional pull can color decision-making, affect value perception and exhibit a strong but invisible influence on deals.

They want to stay involved

One key benefit of PE firms is that they afford family members the chance to continue working with companies in their portfolio. Family offices enjoy management, and tend to want to be heavily involved in their investments.

They don’t want to spend money

Family offices hate paying fees, and so tend to avoid traditional private equity. It might seem odd that some of the world’s wealthiest people also tend to be cheap. But successful people tend to specialize in buying things at a discount and adding value. They don’t want to pay full price for anything.

Creativity is key

Direct investment can avoid fees and leverage the experience of family offices. It also poses the risk of excessive concentration, since even small businesses may represent a significant percentage of a family’s assets.

Family offices often finance their deals by working with other family offices, either via personal contacts or networks such as the Family Office Exchange. They may also work with coinvestors or independent PE funds. Traditional avenues often fail to value the experience and expertise family offices bring to the table, so family offices often have to get creative when it comes to funding their investments.

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