Final Analysis: Paine Management

| FROM THE PRINT EDITION |
 
 

When I was a kid, my dad would occasionally drive the family to the airport and park the station wagon outside the fence at the end of the runway so we could watch the airplanes take off and land.

Over the years, the value of the airport as entertainment venue has waned. Today, most of us place the airport somewhere between necessary evil and public annoyance. Vehement opposition to airport development or expansion—anywhere, anytime —has become more predictable than the Mariners re-re-signing Raúl Ibañez.

And so it plays out again, this time in Snohomish County, where many residents and government officials are positively incensed that their local airport might become, well, an airport.

In December, the Federal Aviation Administration released an environmental assessment report that declared regularly scheduled airline service at Paine Field would not cause undue noise or traffic. Of course, any card-carrying member of the Not In My Backyard Alliance would dispute such a finding on the grounds that airport development should occur only in a vacuum or an Iowa cornfield, whichever happens to be farthest from said member’s frame of reference.

Las Vegas-based Allegiant Air, which flies regularly from Bellingham to places like Maui, Palm Springs and the Bay Area, is interested in providing commercial service at Paine Field. If Allegiant get its wish, Alaska Air Group, which owns Alaska Airlines and Horizon Air, will likely follow suit, just to cover its flank. This competition doesn’t mean you’ll be able to catch a flight from the Everett/Mukilteo multiplex to Sin City next month. For one thing, Paine Field doesn’t have a suitable passenger terminal, so Snohomish County, which owns the airport, would have to come up with the money to build one. And, as it happens, the Snohomish County Council and the county executive are among those who aren’t keen on commercializing Paine Field.

Still, if I could catch a convenient flight from Paine Field, I’d do it in a minute. I suspect thousands like me who live north of downtown Seattle would flock to Paine Field. And there’s the rub. People who don’t want commercial traffic at Paine Field fear the airport will get bigger while the value of their homes gets smaller. In their rush to preserve quality of life, they point to a 1978 document known as the Mediated Role Determination (MRD), which suggested that general aviation and commercial aeronautical work, specifically Boeing’s adjacent Everett assembly plant and the huge aircraft maintenance facility now run by Aviation Technical Services (ATS), should continue to be the dominant uses of Paine Field. A 2005 county task force suggested the MRD should be “retired” as a policy document, but, in 2008, the County Council rejected that finding and restated its opposition to commercial air service.

Some actually fear that commercializing Paine Field could squeeze out Boeing and ATS entirely. Boeing’s willingness to build assembly plants outside the Seattle area is an easy incitement to such silly paranoia. In reality, bringing limited commercial service to Paine Field is a wise economic hedge against placing all of the region’s eggs in the manufacturing/maintenance basket.

When it was built by the Works Progress Administration during the Depression, Paine Field was actually envisioned as one of 10 new “super airports” across the United States. That prediction never came true, but Paine Field has evolved over the years—from public airfield to Air Force base, and from Air Force base to general aviation airport and manufacturing site. Failing to acknowledge the likelihood of further evolution at Paine Field will leave those who cherish stability at the expense of opportunity on the outside looking in.

 

JOHN LEVESQUE is the managing editor of Seattle Business magazine.

Looking for high investment returns? Consider investing in a family business.

Looking for high investment returns? Consider investing in a family business.

 
 

Investors do not lack opportunities to deploy their capital, but being able to generate respectable returns is much more difficult. Part of the problem is finding unique investment opportunities with significant upside in a crowded market. The best option may be to put money to work in a privately-held company.

But private companies pose challenges when it comes to understanding their business, and analysis of the company may be fraught with pitfalls. Or it may be that investors are simply not aware of the opportunity in the first place.

There is, however, an important trend that is clearly discernable in relation to family-held businesses. Wealthy families and individuals are increasingly attracted to the idea of providing capital directly to family businesses as part of their overall investing strategy. And the attraction is reciprocated – family-owned businesses are increasingly open to the idea of wealthy families and individuals providing capital.

At Cascadia Capital, we are seeing a rapid increase in the practice of families investing in families, which can be a highly effective solution for both businesses and investors. Family businesses can be attractive investments, particularly for other family businesses, private companies, individuals, or family offices, which are wealth management companies investing on behalf of a single family or individual. Family run businesses often employ management styles that these investors understand well and can offer portfolio diversification without the hefty fees charged by private equity funds and investment firms; fees that, over time, can add up to millions of dollars.

According to a recent survey by the Family Office Exchange, about 70 percent of family offices now pursue this strategy of direct investing. This may be, in part, due to a shift by family offices seeking to bypass layers of fees and a lack of transparency and control that are inherent to the private equity fund model. Instead, many family offices now prefer to invest directly on a deal-by-deal basis offering more direct control, additional flexibility for longer-term holds, and lower fees. 

From the perspective of family businesses, a significant number are considering alternative solutions to meet their strategic objectives. In the event of a sale, an acquisition by another family can be a compelling solution compared to a private equity or strategic buyer transaction. And when seeking financing for business activities, direct investments from family offices can offer significantly more flexibility than funding from private equity firms that are beholden to rigid criteria and fixed investment periods.

 

The benefits for family businesses of having a direct relationship with their investors or buyers can be numerous. For example, if a family is looking to sell its business, family office buyers can provide liquidity and the opportunity for owners to exit without having to sell to a competitor. If a family is looking for additional financing to fund growth, direct family office investments can offer more favorable terms than other traditional sources of financing.

 Importantly, wealthy families and individuals are more likely to take a long-term view of their investment and are not constrained by exit strategies devised to maximize value within a given time period. Further, these investors often made their money owning and operating successful companies and, as a result, are more likely to understand the nuances and unique challenges of family run businesses. 

This investment trend, while also being experienced in other parts of the country, is gaining momentum in the Pacific Northwest. We are increasingly finding private direct investments to be an effective solution for our family-owned business clients and our family office clients.

Choosing the right investment partner is one of the most challenging decisions a family business can make. We have worked with many private, family run businesses to design long-term, flexible capital solutions and introduce our clients to suitable family office and private investors with common objectives.

 For family offices, like any investment opportunity, buying into family businesses can be very attractive, but it is not without risk. Prior to investing, proper analysis calls for extensive financial due diligence to ensure interests and incentives are well aligned in the transaction. Success depends on ensuring both a structural and cultural fit. We actively encourage family business owners and family investors to work with experienced advisors to carefully explore every available option before determining the best course of action.

Christian Schiller is a managing director at Cascadia Capital, specializing in advising family businesses. Cascadia Capital is a Seattle-based investment bank serving middle market clients, globally.