East coast aquaculture net.
Sean | Eplus | Getty Images
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Equity Group Investments, backed by the family of late billionaire Sam Zell, owns a John Deere dealership, a bluefin tuna fishery and a pedestrian bridge connecting San Diego and Tijuana International Airport.
While these holdings may sound completely unrelated, EGI President Mark Sottile says what unites the private investment firm’s broad portfolio is a focus on old-economy businesses that are less susceptible to disruption from artificial intelligence and other technologies.
“We tend to leverage capital for longer periods of time than most people. [private equity] companies. “If you’re thinking about 10, 12 years from now, you have to start by choosing companies in industries that you know are going to be here,” he said. “That’s why we avoid some technology companies and some startups.” It’s not because we don’t like doing it. It’s very difficult to say what software will look like in 10 years. ”
Anti-AI trade gained momentum on Wall Street earlier this year and was dubbed “HALO,” which stands for “heavy assets, low obsolescence.” Mr. Sottile said family offices are already adopting the same strategies as the private market, investing across generations and emphasizing the cash flow often associated with old-economy businesses. Economic uncertainty and tax reform also make supporting these asset-rich companies even more attractive.
Asset-heavy companies tend to deter traditional PE investors looking to buy or sell within three to seven years, Sottile said, giving family offices an opportunity to buy at a discount.
“Everyone gets excited about asset-light, but I’d say: ‘If you’re paying a premium for asset-light, I don’t see where the benefit is,'” he said.
The “One Big Beautiful Bill” law also benefited owners of these businesses by updating bonus depreciation that allows businesses to fully deduct eligible assets, such as machinery and vehicles, in the first year they are used.
“This is a very significant change that could make a big difference in terms of tax benefits,” said Brian Hans, head of tax efficiency strategist in UBS’s advanced planning group. “Family office clients are increasingly approaching their investments overall with more aggressive tax planning, looking at their after-tax returns, calculating how much return they will make on their investments, and taking that into account when making investment decisions.”
If your business is an active investment, Hans added, depreciation can be used to deduct income from other active investments, such as stocks. This is a big benefit for families who have valued stock ownership, he said.
Joe Mowry, head of dealer investment banking at Stevens, said auto and equipment dealers are ripe for taking advantage of bonus depreciation and need to check off other important boxes for their families, such as reliable cash flow.
“It’s very simple: They want a tax-advantaged source of income,” Mowry said.
Mowry said that while inflation and other economic trends could weigh on consumer purchases of cars and equipment, the parts and service business is resilient and has high margins.
“It’s not a nice-to-have. It’s a must-have. No matter what, you have to go to work, you have to take your kids to school,” he said.
Old economy companies are not immune to disruption, Sottile said, but they have geographic moats that can limit competition. For example, EGI owns John Deere and Kenworth dealerships. Thanks to the franchise agreement, Sottile said he doesn’t have to worry about another dealership of the same brand opening nearby.
Sotil said there are significant barriers to entry for EGI’s bluefin tuna fishing and aquaculture operations in Baja California due to quotas.
Because EGI is family-backed, it is not under pressure to deploy capital like traditional PE firms, Sottile said, noting that the firm typically does one or two deals a year. Mr. Sottile said the company is receiving more inquiries from business owners who are being squeezed by tariffs, inflation and other factors.
“The amount of uncertainty that people are dealing with is oddly beneficial to us,” he said.
Although farms are under tremendous stress, Sottile said there are attractive opportunities in agriculture. The challenges are real, including rising costs of fertilizer and fuel, but EGI can afford to wait for the rewards, he said.
“People are worried about space and now is the perfect time for us to make a purchase,” he said. “If the value doesn’t show up in the first two or three years, that’s okay as long as you know it’s coming, because you have that window.”
