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How family-owned companies outperform in every sector: Report

  • Report found family-owned enterprises had stronger revenue and EBITDA growth, higher margins and better cash flow returns
  • Family-owned company defined as one where the founder or their descendants directly own at least 20 percent of shares or have voting rights of at least 20 percent
  • Alphabet, Facebook and Alibaba are the largest family-owned companies by market cap

There is a positive correlation between market performance and companies owned by their founder or family, according to a report from Credit Suisse.

Research into around 900 family-owned enterprises found they had stronger revenue and EBITDA (earnings before interest, tax, depreciation and amortization) growth, higher margins and better cash flow returns — averaging 14 percent — compared to non-family-owned businesses.

"Since early 2006, our 'Family 1000' universe has outperformed broader equity markets by an annual average of around 400 basis points per year," said the CS Family 1000 report, published Wednesday.

The report defines a family-owned company as one where the founder or their descendants directly own at least 20 percent of shares or have voting rights of at least 20 percent.

Based on this definition, Alphabet, Facebook and Alibaba are the largest family-owned companies by market cap.

Credit Suisse found that this outperformance takes place regardless of other categories.

"Over time, family-owned companies very structurally outperform in every region, every sector, and for small and larger companies," Eugene Klerk, head analyst of thematic investments at Credit Suisse, told CNBC's Squawk Box on Wednesday.

"The market used to acknowledge this, but our argument is it does so far less these days, even though fundamentally the financial performance has actually improved over the last three to five years."

In it for the long term

One of the main reasons for this outperformance is that family-owned businesses have longer-term focus, according to the report. This long-term view then generally led to more robust growth, it said.

plumbers, father and son, family business, plumbing, older and younger man
Image Source | Digital Vision | Getty Images

"It's the multi-year investment story, rather than quarterly earnings story, and if you look at things like R&D (research and development) intensity, family-owned companies invest more of their revenues on average in R&D, again more supportive of the longer term focus," said Klerk.

Family-owned companies are also more likely to fund the company's growth organically rather than through borrowing and were more likely to reduce net debt.

The report surveyed 100 family-owned companies to find out about their strategies. More than 50 percent said their key parameter for senior management's remuneration was long-term financial or non-financial metrics, with multi-year revenue or earnings growth being the most popular metric.

"One interesting aspect of our analysis is the fact that family ownership correlates with longer-term remuneration policies. Sixty-one percent of companies where the family holds a 50 percent or higher stake have a long-term financial or non-financial remuneration policy," the report said.

The degree of ownership did not apparently impact a company's performance.

"Although the highest returns were achieved by companies with the highest family ownership (greater than 70 percent) we do not believe that a straightforward relationship between these two variables can be identified," the report added.

"It appears to us that the notion of family control through"day-to-day" or board membership involvement might be more relevant than the percentage held in the company by the founder or his/her family."