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Pritzker’s Carbone sees ideal moment for family capital

Carbone says family capital's flexibility and patience may be appealing to family- and founder-owned businesses facing headwinds due to covid.

Paul Carbone is president and managing partner of Pritzker Private Capital, the private markets arm of the Pritzker Group, an investment firm run by the Illinois-based Pritzker family. Pritzker Private Capital invests in mid-market companies across a host of sectors, including healthcare, services and manufacturing. The firm focuses on family-run businesses in North America. Family offices are surveying the impacts of the coronavirus crisis and looking for ways to make their money work in this unprecedented situation. Carbone feels family capital is ideally suited to this environment.

What are the advantages of family capital during the current economic crisis?

During periods of extreme volatility and uncertainty, including the current crisis, family capital is inherently advantaged in several ways over traditionally structured capital. Family capital is often both permanent and proprietary, allowing for maximum flexibility in terms of its structure, terms and intent. Family investors can most readily craft capital solutions which are tailored to the specific needs of a business and its owner. In particular, family capital is not bound by the duration constraints of traditional private equity funds. We have the flexibility to invest for the long term and look past shorter-term crises to pursue an attractive path to sustainable growth.

How would you compare the way family capital operates in the market to the way private equity does?

While traditional private equity will continue to be a successful asset class and source of attractive returns for its investors, we believe that the inherent flexibility of family capital provides important, differentiated value to businesses and their owners. Family capital is most advantaged when business sellers or seekers of capital care about their companies post-close. For businesses that care about legacy, their company culture and how long the company operates as an independent entity, family capital often can most adeptly address these needs versus traditionally structured capital. In addition, for a family business seller, family investors bring an understanding and an appreciation of how family businesses operate and what they need to be most successful. Shared vision, philosophies and values are often the common foundation of successful partnerships between family businesses and family investors.

What investment strategies do you recommend families employ during this crisis? Specifically, would you recommend minority or majority investments?

With the inherent flexibility and longer-term perspective I’ve mentioned, family investors are able to customize solutions to the specific challenges facing founder-led and family-owned businesses. As one example, today we are seeing discrepancies between how businesses might view their prospects and how potential investors might underwrite those same forecasts. In a market where sellers and buyers may not agree on valuation, having the flexibility to provide structured minority capital allows family investors to bridge value discrepancies. Also, the new transaction debt market is anything but robust today as lenders focus on their existing credits and they too take a conservative cut at business projections. As a result, much of the traditionally structured majority ownership capital is on the sidelines with few new control deals getting done, leaving potentially attractive investment opportunities to family investors using minority capital structures. Family investors can look beyond the turmoil of today’s market and not worry about having to generate the immediate/consistent growth traditionally structured funds might need to satisfy their requirement for a nearer term exit from their investment.

How has Pritzker Private Capital approached this crisis?

We have a long-held belief that we build better, more competitive businesses because we intertwine our investing and operating expertise in all that we do. Throughout this crisis, our sizable investing and operating teams have worked seamlessly and tirelessly in support of our company employees and our companies. In addition, we have invested only where we have deep expertise and understanding, and have tried to avoid companies with significant uncontrollable or unfamiliar risk. Our efforts have been further reinforced with the formation of Pritzker Advisory Board which includes eight senior executives with deep, relevant operating expertise to bolster our internal bench of talented operating executives. As a result, we are fortunate that our employees, management teams and companies are performing well during this crisis. In turn, we are very interested in investing in and working with new businesses who value our differentiated, family capital and seek a partner who can bring a flexible structure, shared values and a longer-term perspective.

What is your view of how, ideally, you would like to see the investments you make in the near future pan out in the long term?

We seek to invest in “franchise” businesses which are looking for a partner and capital to help them execute their strategies for the long term. Today we are in discussions with family/founder business that fit into one of three categories. First, there are the families who have their entire net worth tied up in their business and the current crisis has opened their eyes to the potential benefit to having a partner who can help them diversify and manage their risk. Second, we are in discussions with businesses who want a partner to help them take advantage of the opportunities they see to build their businesses during these changing times. Finally, in all market conditions and including in challenging ones, we see sellers who need to find liquidity for a junior partner, one of the branches of the family or a traditionally structured equity partner. Importantly, we are not turnaround investors. We view ourselves as business builders helping take good businesses to the next level in partnership with their management teams and other families.