Ensuring high returns is a big challenge for family businesses
January 14, 2018 | 11:41 AM
by Times News Service
Times file picture used only for illustration purpose.

Muscat: The most important challenge faced by family businesses in the Middle East region is to ensure higher returns as families are growing in size as they move through generations, according to a report released by Deloitte.

The findings of the Deloitte report reveal that only 39 per cent of the families interviewed have a formalised written succession plan in place. Clear succession plans make sense, whatever the size of the family group, to make the business more decisive in markets where clear decision-making is essential.

Deloitte conducted in-depth interviews with over 40 of the most prominent family businesses in the Middle East, who operate across a range of industries, to ask what their priorities are for the business over the next 12 months, the structures they have in place, the industry sectors they expect to see the most deal activity and their confidence in the short to medium term prospects of the Middle East markets.

“As families continue to grow and the requirement for portfolio returns and dividends grow, ensuring a more structured approach to both new investments and the monitoring of existing investments becomes paramount. The active management of both risk and return of their business will help families more effectively adapt to both external market forces and their own complex internal dynamics,” said Scott Whalan, Partner, Financial Advisory, Deloitte Middle East.

With a view to preserving family wealth, some of the larger families have improved governance and established more solid structures for their investment plan, making plain its objectives and processes. Frequent monitoring of capital across the group remains important, in order to ensure the risk and return characteristics of the portfolio are aligned to the overall strategy. Around 44 per cent of the families Deloitte spoke to have an investment committee which is independent from the board

Families may generally need to consider taking on more risk, by investing in new and potentially unfamiliar sectors, or in new asset classes. Families are considering making acquisitions of larger more complex businesses, in order to meet their needs.

“One of the most significant challenges now facing family businesses is how to maintain the balance between business and family goals. This challenge is magnified by the globalisation of financial markets, which has increased both access to alternative sources of funding and the number of opportunities for family businesses,” said Nick Beer, Director, Financial Advisory, Deloitte Middle East.

“For those family offices seeking to replicate or expand on historical return levels, there is an increased focus on larger and more complex acquisitions. The growing acceptance of external financing from family offices, whether it be debt or external equity investors, will continue to help fuel growth and transaction activity across the region,” added Beer.

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