Family businesses form the real backbone of the economy in the Middle East and North Africa (Mena) region and contribute substantially to the gross domestic product (GDP) in the private sector in Bahrain.

Most of the old family companies are now large conglomerates with diversified interests in all major industries, said a report in the Gulf Daily News (GDN), our sister publication.

According to the Family Firm Institute, family businesses create more than 70 per cent of global GDP.

Yet, they share a number of characteristics that set them apart from other companies.

KPMG, in association with Mergermarket, surveyed 125 family businesses around the world about the types of investment they require, their investors of choice and their previous experience of receiving investment from high net worth individuals (HNWIs) or other family businesses.

In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.

The survey found that four-fifths of family-owned and run Middle-Eastern businesses are seeking external finance, while three in five have previously offered equity in their business to external investors.

Over the longer term, family businesses have more ambitious growth plans.

Acquisitions are top of the agenda with nearly a quarter citing this as the most important funding need, followed by expansion in new geographies (18 per cent) and new sectors (16 per cent).

This suggests that family businesses would be more adventurous and expansive, if they were better able to tap into sources of funding that were appropriate to their needs.

As many as 58 per cent of family businesses surveyed say they are seeking external financing.

A key differentiator between family businesses and other companies is the fact that the majority of family businesses view maintaining control over their company as a key success factor, which can make financing options limited.

Some family businesses may look to private equity or corporate strategic partners, but such financing options limit or reduce control for the family business owner.

Bahrain boasts of a strong family business sector and these companies generally have similar concerns around control while raising capital.

This strong desire of family businesses to retain majority ownership creates the opportunity for HNWIs to play a role in bridging the funding gap via partnering.

By tapping into this HNWI group, family businesses can access investors that are more willing to accept a minority stake in the business.

Not only can HNWIs provide a source of funding, they can also provide insights that can benefit the business beyond funding.

Bahrain family businesses would be well poised to take advantage of the HNWI group, which has grown over the years in the country and can be open to investment in other family business given the right opportunity.

"Investment between family businesses and HNWIs in the Middle East is not common mainly due to the perception that HNWIs would want to get closely involved in management decisions and day-to-day operations of the family business," KPMG in Bahrain partner and head of family business in the Middle East and South Asia Harish Gopinath said.

"However, family businesses are seeking external finance and, in addition to financing, connecting with HNWIs can bring about synergies and tap into the knowledge and experience of HNWIs which will enable them to grow to the next level."

Globally, HNWIs' positive experience with family business investment is reflected in their appetite for further investment.

Nearly two-thirds (62 per cent) of HNWIs say that they are either interested or very interested in investing in family business.

Education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. While there are challenges on both sides, family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners. - TradeArabia News Service