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Private equity minority investments in large family firms: what influences the attitude of family firm owners?

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  • Achleitner, Ann-Kristin
  • Schraml, Stephanie
  • Tappeiner, Florian
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    Abstract

    This paper extends research in the field of private equity investments in family firms. It contributes to the literature by fundamentally analyzing the decision criteria of family firm owners for using minority investments of private equity investors. This type of financing might be of great interest to family firms, as the family firm owner is able to secure majority ownership and control over the family business. Likewise, minority investments might be attractive for private equity investors, as they are mostly not leveraged and therefore independent from capital market turbulences. Using data from 21 case studies, we identify challenges induced by the family or the business that lead to the phenomenon of private equity minority investments in family firms. We find that perceived benefits and drawbacks of private equity investments are influenced by business and family characteristics. Based on pecking-order theory, resource-based view and the strategy paradigm, propositions as well as a conceptual framework are developed.

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    Paper provided by Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS) in its series CEFS Working Paper Series with number 2008-12.

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    Date of creation: 2008
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    Handle: RePEc:zbw:cefswp:200812
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    Keywords: private equity; minority investments; family firms; financing; managerial resources;

    Find related papers by JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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    1. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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    8. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    9. Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 0(2), pages 123-147.
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    11. Macmillan, Ian C. & Kulow, David M. & Khoylian, Roubina, 1989. "Venture capitalists' involvement in their investments: Extent and performance," Journal of Business Venturing, Elsevier, vol. 4(1), pages 27-47, January.
    12. Howorth, Carole & Westhead, Paul & Wright, Mike, 2004. "Buyouts, information asymmetry and the family management dyad," Journal of Business Venturing, Elsevier, vol. 19(4), pages 509-534, July.
    13. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
    14. Nancy Upton & William Petty, 2000. "Venture capital investment and US family business," Venture Capital, Taylor & Francis Journals, vol. 2(1), pages 27-39, January.
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