Knowledge and perception gaps between private equity and small-to-medium-sized family-owned enterprises (SMFES) - an exploratory study

Abstract

This paper presents the findings of exploratory research into the challenges that Small-to- Medium-sized Family-owned Enterprises (SMFEs) face when engaging with the private equity (PE) sector. There is an upcoming crisis in the succession of Australian SMFEs where it is estimated that two-thirds of the owners may be unable to handover their businesses to the next generation. The scale of these problems suggests that not all SMFE owners can look forward to traditional exit options such as trade sales. The recent rapid growth of the Australian PE sector has resulted in new exit options through ownership restructuring deals with PE firms such as Management Buy-Outs (MBOs). But most SMFE owners are unprepared to or ill-equipped to engage with such organisations. This study, conducted through interviews of SMFE owners, PE firms and family business professional advisors in South Australia, indicates that there are three large gaps between SMFE owners vis-à-vis the PE community: (1) a finance gap; (2) a knowledge gap; and (3) an empathy gap. The results of this study also suggest that these gaps interact with each other to exacerbate the overall gap, and that some professional advisors were found to contribute to (rather than bridge) these gaps. This paper concludes with a revised conceptual framework model for the better understanding of the barriers to and opportunities for SMFEs to gain access to PE.