The pandemic has triggered times of unprecedented disruption for firms worldwide, highlighting the critical need for organizational resilience and flexibility. How have European family investment companies (FICs) performed in this context of uncertainty? As part of our ongoing research on European FICs, John Learmonth and I tracked a broad sample of companies, both before and during the pandemic, whose findings offer some interesting insights.
We define an FIC as a “family-owned or controlled company actively investing directly in and managing a portfolio of assets.” In the first edition of our European Family Investment Company Report, published in early 2020 by Deanbridge International in association with IESE Business School, we identify and analyze the performance and practices of 358 family investment companies across 31 countries, including 100 real-life examples. Germany tops the list of this study with 52 FICs, and of the 358 firms, 34 are publicly listed. The average FIC has €5.8 billion in total assets and is controlled by family members from the third generation and beyond. In our view, the study is among the first in-depth assessments of this large body of multi-generational, entrepreneurial family enterprises.
“FIC structure and philosophy appears to offer the flexibility and entrepreneurial intent to support the long-term interests of a multi-generational family in business.”
Among the report’s 12 takeaways, we conclude that the “FIC structure and philosophy appears to offer the flexibility and entrepreneurial intent to support the long-term interests of a multi-generational family in business.” FIC actions during the pandemic support this view, underlining the resilience of the FIC model in terms of both financial performance and investment activity.
Regarding performance, February and March saw the first disclosures of FIC annual results in 2020. While some FICs reported downturns in sales revenues (Bouygues) or profits (Ackermans & van Haaren), in many cases these declines were small. At the opposite end of the spectrum, other FICs achieved exceptional results, with examples such as Ratos, with a 60% upsurge in EBITDA, and Lars Larsen, which reported a record-high increase in turnover and an 8.6% uptick in profit. More importantly, almost without exception, FICs are showing a robust rebound in the second half of the year. Even Lagardère – which in recent times has been in battle with an activist hedge fund – reported strong performance in H2 2020.
“What are the core drivers behind FIC resilience? In our view, three main reasons stand out: diversification, low leverage and high liquidity.”
At the same time, the pandemic has not put a stop to investment activity, as illustrated by the countless examples of FICs buying, selling, launching and partnering over these last months. Even at the height of the 2020 crisis (end of April and early May), our regular news briefings spotlighted the launch of a new venture fund, a new renewable energy joint venture, an e-commerce acquisition, a new real estate development, an industrial takeover and a manufacturing takeover and delisting, to name a few.
What are the core drivers behind FIC resilience? In our view, three main reasons stand out: diversification, low leverage and high liquidity. To be sure, FIC resilience is also supported by other factors such as family values, long-term vision and a vast wealth of historical knowledge and experience, but these are stories for another day and another blogpost.