France provides a wealth of family-owned companies for investors
Philip Best and Marc St John Webb, managers of the Quaero Family Enterprise Fund at Quaero Capital, give insights on investments in European family businesses.
France is often cited as a problematic market for equity investors but we at the Quaero Family Enterprise Fund have found it to be a rich hunting ground for superbly-run family owned companies, and have maintained a heavy weighting there despite a sometimes weak macro-economic backdrop.
We started 2016 with 31% of the portfolio invested in France, which has contributed a hefty 30% to the fund’s outperformance over the last calendar year.
French corporate culture has long been the target of criticism in Anglo-Saxon circles, but we’ve noted a distinct change of tone in the last year.
For example, French technology companies are fast forging a reputation for innovation and service, even in the testing US market.
Among the firms we particularly admire is the Gorgé family’s diversified technology company Groupe Gorgé, whose share price rose a further 39% in 2015.
Embedded within it is Prodways, a very dynamic maker of 3D (additive manufacturing) printers, which is becoming a world leader in its field.
The Groupe’s submarine and aerial Drone business is also growing well, as is its strategic unit making high specification blast doors for nuclear power stations.
Another strong performer from France has been the Despature family’s Somfy, a global name in the expanding home automation equipment.
Apple makes the iPhone which can remotely operate domestic blinds, shutters, doors and garden gates, but it is Somfy’s compact motors and clever mechanisms which execute the work.
Finally, our investment in Patrick Combes’ French holding company Viel et Compagnie nearly doubled (+99%) as the operating environment for its main asset, inter-dealer broker Tradition, improved.
Our next highest geographical weighting is Italy, at 17% of the fund.
We raised our exposure substantially in 2012 after several visits uncovered some attractive family-owned companies available at a substantial discount to our estimates of intrinsic value.
At the time, Italy had been abandoned by equity investors but it was well suited to our Value style and process. Economic recovery is still barely perceptible, but the beginnings of reform mean that companies are now more confident about their future.
A strong performer has been the Selci family’s Biesse which makes manufacturing equipment for wooden furniture and fixtures. The share rose 74% last year on a substantial pick-up in business both domestically and internationally.
Another gem is the Volta family’s automated data capture equipment firm Datalogic, which rose 87% on delivered growth and substantially improved profitability.