Five Questions with Frank McGrew of family office McNally Capital

McNally Capital, the family office of the McNally family, was founded in 2008 by Ward McNally. The family’s wealth comes from Rand McNally & Co, at one time the world’s biggest mapmaker.

McNally’s direct investment portfolio includes Feddata, Dedicated Computing, Genesys Aerosystems, Europa Sports Products, ITS Logistics and Advanced Micro Instruments.

Frank McGrew, managing director, looks after direct investing alongside McNally and Adam Lerner. McGrew sat down for this interview with Buyouts.

How do you collaborate with family offices?

We have a large annual conference composed entirely of family offices (not service providers with programs by families for families). We also host a variety of roundtables throughout the U.S. throughout the year. McNally Capital was an early adopter of Salesforce and we’ve built a highly-proprietary database of 800+ family offices that we curate extensively through each family’s interests, current market forces and deal flow.

What are the current investment themes that excite you?

The passing of the Tax Cuts and Jobs Act created “Opportunity Zones” – a new federal program that offers private investors tax benefits to invest in economically disadvantaged areas. OZs have piqued the interest of family offices, high-net-worth individuals and large private bank clients. Within our own family office network, OZs have driven significant interest.

In October, the U.S. Treasury clarified some of the technical aspects of OZ investing and we expect ongoing updates to continue in the coming months. In the meantime, our firm is in various stages of discussions with proven real estate developers, operators and other potential investment partners and we have access to various “Quality Opportunity Funds” (QOFs) under development. Economic Innovation Group estimates that investors are holding $6 trillion in unrealized capital gains, so with that much potential, it is no wonder why there is so much interest in this space.

What makes McNally Capital an investment partner of choice for family offices?

We are a family office investor ourselves. That’s how we think and act when it comes to how we advise our family office network. Our firm was formed by the McNally family, who owned and operated Rand McNally & Co and we are dedicated to upholding that 140+ year legacy.

We bring a lot of options to the table for family offices within our network as we provide merchant banking services to operating companies and family office buyers in addition to direct investment services where we aren’t afraid to put our own capital on the table.

We are not a volume shop. We focus deeply on long-term, substantive results and relationships with our family office investors, which form the foundation of our business model.

What are your criteria for direct investments?

Our thematic approach goes well beyond check size and we are very selective as we seek out incumbent management teams and partners who like the idea of a family office for its long-term holding horizon.

Typically, we invest $15 million – $40 million in differentiated U.S.-based companies with between $5 million and $20 million of Ebitda and also have the ability to pursue larger transactions alongside co-investors from our growing network of family offices.

A lot of our transactions focus on incumbent management teams and leadership transitions where liquidity is desired in addition to a long-term growth partner. We actively avoid high-leverage strategies to enhance our returns and instead utilize the expertise and capital and of our network to grow exceptional companies.

What are the new trends in family offices?

We have a saying that if “you’ve seen one family office, you’ve seen one family office.” While many are similar, each is unique in its own way.

However, many families are finding that they do not have unlimited amounts of capital to deploy. Direct investing is extremely difficult, time-consuming and expensive. Once a family office consummates a transaction, they often struggle to monitor the company and continue deploying resources as they seek growth.

Because of these factors, we’ve seen a transition by family offices to passive investments by allocating capital to institutional managers.

On the other side of the coin, we see family offices continue to seek-out one-off opportunities when they have excess capital and can be nimble and passive without having to be committed to an institutional fund.

Overall, family offices have competing agendas and priorities that can often interfere with direct investment efforts and that’s why so many seek partnerships with firms that can supplement roles and responsibilities they lack, while providing real value and partnership.

Edited for clarity by Preeti Singh