Family-owned businesses have outperformed the broader equity markets across every region and sector on a long-term basis, according to a recent report by the Credit Suisse Research Institute (CSRI). The research titled ‘Credit Suisse Family 1000 in 2018’ covers 11 markets in the Asian region, excluding Japan, and finds that family-owned businesses in all the regions deliver stronger revenue growth and higher levels of profitability.
CSRI says the performance of the family-owned businesses vis-à-vis peers in the broader equity markets supports their strong share price appreciation since 2006. The report finds that in the 11 regions it has covered, family-owned businesses represent a total market capitalization of over $4 trillion. Interestingly, with a total of 111 companies and $839 billion total market capitalization, India continues to rank at number three globally in terms of number of family-owned companies.
Eugène Klerk, Head Analyst of Thematic Investments at Credit Suisse and the report’s lead author highlights that family-owned businesses are outperforming their peers agnostic of the sector and region they operate in, and immune of business size. "We believe this is down to the longer-term outlook of family-owned businesses relying less on external funding and investing more in research and development." says Klerk. "Our research on a global scale also suggests family-owned companies with special voting right structures perform relatively in line with those with ordinary shares, contrary to the fears expressed by many investors,” he adds.
The report points out that Indian family-owned companies generated a 13.9% annual average share price return since 2006, compared to 6.0% recorded by their non-family-owned peers. And, in terms of sector contributions to total market capitalization, technology (18%), consumer discretionary (16%) and materials (15%) make up the top three sectors. Further, out of the 50 most profitable companies globally, 24 were from Asia, with a total market capitalization of $748 billion. And, 12 Indian family-owned companies with a total market capitalization of $192.2 billion made it to this top 50.
The report also evaluates the best performing family or founder-owned companies for each of the key regions on a three, five and 10-year basis, based on their growth and profitability profile. And, in the non-Japan Asian region, more than 50% of the top 30 best performing companies are from India, followed by one-third from China. The companies which made the cut to this elite 30 include Bajaj Finance, TVS Motors, Bombay Burmah Trading Corporation, Dewan Housing Finance, Eicher Motors, Britannia Industries, Page Industries, MRF, Havells India, Ashok Leyland, Symphony, Pidilite Industries, Schaeffler India, Natco Pharma, and Berger Paints India. Interestingly, excluding Symphony which is a Fortune India Next 500 company, the other 14 companies are ranked on the Fortune India 500 list.
"The report finds the best-performing family-owned companies in the region have structurally offered better top-line growth and have better cash flow return profiles than the wider family-owned universe in their region over a three-year, five-year and 10-year horizon," says CSRI.
At a time when most of the debt-trapped companies in India have a family-owned tag, the contrasting family-owned companies highlighted by CSRI shout aloud that all are not bad. Moreover, it adds that family-owned businesses are fashionable. After all, better returns are what matters the most for shareholders and stakeholders at large.