Private Equity Firms Face Heightened Competition from Family Offices

The private equity industry will face many challenges in 2016. Despite the hype about 2015’s being a record year for announced mega deals, in the middle market, M&A slowed down, producing fewer completed deals than the previous year. In December, our Mid-Market M&A Conditions Index (MACI) dipped into contraction territory for the first time since Mergers & Acquisitions began our monthly polls in the fall of 2013.

In 2016, traditional PE firms will face even more competition, not only from each other but also from investment firms that embrace aspects of the PE model but skip the fees and fundraising strategies. Among these alternative firms are independent sponsors, which conduct transactions on a deal-by-deal basis, as we wrote about in our December issue.

Here in the February issue, we take a close look at family offices, many of which are now making direct investments instead of relying on PE firms to make choices for them.

“A number of families are disenchanted with the traditional PE structure and want patient capital to build long-term value,” says Paul Carbone, who heads up private capital for the Pritzker Group.

Chicago’s Pritzker family is best known for creating the Hyatt hotel chain and the Marmon Group, a conglomerate of manufacturing and industrial services, which was sold to Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A) for $4.5 billion in 2007.

The Pritzker Group is led by brothers Tony and J.B. Pritzker. Many wealthy families are “comfortable with building companies on their own, as many have built their wealth through company ownership, so they don’t need a private equity firm to invest for them,” says Carbone.

With this issue, a member of our own Mergers & Acquisitions family is moving on. We wish assistant managing editor Allison Collins the best of luck, as she takes on a new role as beauty finance reporter for Women’s Wear Daily.

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