Corporate finance and financial advisory for family business

Abstract

Wealth management services for clients who are entrepreneurs or hold quotas or shares in family-owned firms (private companies) have some very particular features as regards investment or asset management. As a matter of fact, wealth management providers have to take into consideration two aspects of this type of clientele. On the one hand, an entrepreneur and his/her family or an entrepreneurial family are considered to be individuals with their own assets and annual income flows which must be optimized according to the established principles of asset management. On the other hand, however, the source of the income flows is closely linked to the management of the company and a large part of the entrepreneur's wealth is invested in the company itself. These characteristics raise particular problems in terms of optimizing the client's wealth. This particular aspect has always had and continues to have considerable influence on those providing advisory services to entrepreneurs and entrepreneurial families. When financial intermediaries realized that this type of clientele presented some rather unusual features they began to gradually change their private banking activities. Although these activities initially focused mainly on managing the financial assets of high or very high net worth individuals, irrespective of the source of their wealth, they gradually turned into highly personalized services. This involved switching from an approach based on "financial" private banking to a broader one based on the management of the client's overall assets i.e. "wealth management". The search for a new role also meant segmenting the high or very high net worth clients even more and identifying groups of clients - including entrepreneurs and their respective families - with diversified needs due to the different source of their income or assets portfolio. Moreover, the entrepreneur clientele often requires services involving deal planning, deal structuring and funding special transactions for companies in which the entrepreneur or his/her family hold equity stakes. Therefore, in the competitive arena, it is common to find not only operators traditionally associated with finance (mainly banks and private bankers) but also those associated with management or financial consulting. This chapter focuses on the relationship between personal and company asset management. Since a considerable part of the family assets are tied up in running the company, it is necessary to examine how corporate finance and corporate financial advisory services are integrated within the overall personalized management services. It is also necessary to precisely define what kinds of services can be offered, when they can be offered and who can provide these types of services and the kinds of business models they have developed. The chapter is divided in the following way. Paragraph 2 describes the position of corporate finance in the more general framework of the management of the entrepreneur's wealth. Paragraph 3 evaluates the consequences in terms of the services requested to optimize the personal wealth of the entrepreneur and his family. This paragraph aims to describe, in a prescriptive way, the services that an operator should provide in order to be considered a credible partner in the wealth management business. Based on the different kinds of services required, paragraph 4 describes the effects on the offering and the prevailing business models. As regards the first point, we explain the links between private banking, corporate finance and the advisory services offered to entrepreneurs or entrepreneurial families; as regards the second point, we illustrate the business models adopted by large integrated banking groups and consulting firms traditionally associated with management consulting and corporate finance. We also describe developing trends in wealth management services for family businesses that are empirically observable at the international level. © Springer Berlin Heidelberg 2005.