By Francis Chan

Learn to align your business objectives with a private equity partner and worry less about saving face. That is the advice for reticent family-run firms which might well benefit from private equity partnerships providing vital extra funds or expertise for business expansion.

Two private equity firms told The Straits Times that local business owners, unlike their European counterparts, are slow in tapping private equity investors for growth.

The reason: Sharing control of a family business with an outsider may be seen as losing face or respect.

Private equity firms typically help by providing businesses with growth capital for acquisitions, expansion into new markets or to take on new staff or buy new equipment.

In return, companies need to grant their private equity partners a minority shareholding and sometimes even a controlling stake in the business.

According to the director of a Singapore-based private equity firm who did not want to be named, local entrepreneurs remain cool to the concept.

'It's a Singaporean mindset,' he said. 'Even big-name companies would rather continue borrowing money from a bank and pay high interest rates than allow an outsider to take a stake in their family business.'

This aversion to inviting in a third party who could contribute management and technical expertise or funding has sometimes meant a stagnation for firms here. 'They are so afraid that by not having a 100 per cent say in how the company is run, it will mean they are no longer the owner,' he said.

London-based private equity firm 3i Investments, however, said its experience in Europe is starkly different. But it acknowledges that challenges faced by leaders from family-owned businesses are more complex.

'Besides balancing the growth of the company, they also need to ensure the history and achievements of the firm are retained,' said Mr Mark Thornton, 3i's managing director and Asia co-head. 'Other issues include succession planning and the need for strategic input without...losing control of the company.'

He also explained that bosses should not be preoccupied with losing control of the business because there are firms such as 3i which are prepared to take 'non-control positions'.

He said that in these cases, the day-to-day management of the business will remain 'in the hands of the family business owners'.

But what is critical for 3i, which has over 60 years of experience in working with family businesses, is that to make the relationship work, both parties must first have a shared vision.

'Even as a minority participant, we invest only when we share the vision and ambition for growth with the owners,' said Mr Thornton.

One of 3i's latest clients agreed.

'They are now active board members,' said MrBob Kneip, chief executive of Kneip Communication, a Luxembourg-based firm in which 3i invested ? 37 million (S$75 million) in 2007 for a minority stake. 'We agreed at the onset of the deal on a specific shared vision of doubling our existing operations through acquisitions and organic growth,' said Mr Kneip, who founded the firm in 1993.

He said his firm's partnership with 3i was intended to last for five years. But 3i retains the option of exiting the deal in the fourth or sixth year. Mr Kneip said he is comfortable with this arrangement and does not see it as a destabilising factor.

'That is a time frame we have discussed to align with both our interests. And that is critical in such partnerships.'

This article was first published in The Straits Times on September 17, 2008.