A new article by Dr. Nava Michaeli-Tabri and Eilon Pinhas argues that private equity and family-owned firms are not natural enemies, and can in fact be a strong match when the investor recognizes the family’s value. The piece is based on research published in the Journal of Small Business Management and on the authors’ examination of an Israeli private equity fund that bought control in three long-established family companies while keeping the families as shareholders and active partners.
The article opens with an example from due diligence in one family business, where three brothers ate a daily lunch cooked by their mother in the company kitchen and the mother received a salary far above that of an ordinary cook. What looked like waste or disguised profit extraction turned out, after deeper review, to be a mechanism for preserving family cohesion, reducing sibling tensions and stabilizing management. Rather than demanding the arrangement be scrapped, the fund priced it into the deal.
The authors say the real issue in family firms is not the family itself, but “ownership risks,” meaning risks that stem from how owners wield power inside the business. They identify three recurring risks, reliability, when family considerations override business ones, egocentrism, when company resources are used for personal or family needs, and inheritance, the difficulty of transferring control to the next generation in time and properly.
At the same time, the authors argue family firms often bring long-term thinking, trust with employees and customers, and decades of stability. The studied fund therefore did not only assess financial statements, it also examined internal family power, decision-making patterns, trust, and the family’s ability to work with an outside partner.
After the acquisition, the fund combined corporate governance, transparency, formal processes and outside professional managers with efforts to preserve family knowledge, values and relationships. The authors describe this as “Steward PE,” a model in which the family can remain partly involved while its identity and culture are maintained. In their view, successful deals are those where the fund does not try to turn the company into a normal firm, and the family does not resist every change, but both sides use their differences to create value.
