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Private Equity Investments in Family Owned Businesses in Turkey

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Buy-outs of family/private firms represent a significant part of the overall buy-out market in Turkey. When considered that 95% of the companies in Turkey are family owned business, and most of them seeking a safe fund, Private Equity Companies most probably will be the best option for this kind of companies.

Advantages of family companies

There are some advantages of the family owned businesses that is investing in would be profitable for the investor too, such as;

1- In family owned businesses both in establishment and acceleration levels, mostly family members try to create fund by putting up their profit share. Because their company name also presents their honor, which means that the business and family name are nested; they mostly consider future of the company compared to profit that gained from the company. Therefore, due to this sentimental view of family owned businesses, they can be experience and motivation enhancer for the employer working in the company, which is very important for the growth.

2- Dynamism: Because of bureaucracy pressure is less than any other non-family businesses, the company gain dynamism. Therefore, it is much easier to accommodate to changes and the new opportunities may be evaluated more efficient.

3- Quick Decisions: Generally, because decisions have been taken by one person or one small family group there is a very fast decision making procedure compared to more corporate firms.

Potential Pitfalls

The main pitfalls are lack of openness and control of the company.

1- Lack of Openness: There is a temptation of keeping the business to the family in Turkey. Most family businesses are tightly run by the family but very few outsiders. Outsiders can work with the family but in general they are not at the top of the company.

  1. Control of the Company: For the family owned business giving up the control would not be that easy. When you think of that the owner who established the company and increased the profit, the giving up idea could be a hard decision mostly in the companies where business and family relations clasped to each other very tightly. Therefore, management without institutionalization of the family owned businesses can be challenging for the PEs. (Private Equities)

In conclusion, family owned businesses have some pitfalls however the organizational structure is simple, effective and manageable.

How to Add Value to a Family Owned Business

Family owned business have been struggling with sustainable capital growth need decrease in profitability of the company, risks and uncertainty. In order to solve such problems, determination of efficient strategies, efficient use of resources has a significant role in accordance with the growth in capital.  Applicable corporation policy must be determined in case of determination of organizational and operational strategies, and application of the strategies aimed at family owned companies, profitability increase, determinations of Portfolio Company in conformity with the targets that were set before. Within this is scope, benefiting from new Capital Market Board (CMB) Communiqué which was prepared accordance with Organization for Economic Co-operation and Development (OECD) rules, would be very helpful to fill the gaps in management of the company.

Even though family owned businesses have some pitfalls, private equity companies may turn these into an advantage and make profit by investing in these companies. Because family owned businesses are seeking for fund, private equity companies are going to a perfect capital if reconstruction of the family owned businesses can be succeeding in accordance with the institutionalization principles foreseen both in Turkish and international legislations. On the other hand, family values are important for the company since business and family are nested as mentioned above. Therefore, if PEs can recognize that value and work together for the common good, family owned businesses can be the best competitive advantage for them.

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