Australian PE deals down by half

Australia's small and mid-market deals have increased, but total deals, exits and fundraising are down for the year.

Private equity transaction value and volume decreased sharply in Australia in the fiscal year (July 2011 to June 2012), according to a joint study by the Australian Private Equity and Venture Capital Association (AVCAL) and Pacific Strategy Partners.

Private equity deals in the country totaled only A$5.5 billion (€4.8 billion; $6.2 billion) across 70 deals, as compared to A$11 billion across 84 deals in the previous fiscal year.

However, a survey of 30 Australian private equity funds revealed that 57 percent believed the country’s deal pipeline had improved in value and quality over the past year, “particularly in the low to mid-market space”, according to the report.

Part of that disconnect comes from two outlier deals in FY2011 that skewed the numbers, according to the report. Adjusting for two multibillion-dollar deals – TPG and Carlyle’s A$2.7 billion leveraged buyout of Healthscope, and TPG’s A$2.1 billion debt-for-equity swap with Alinta Energy – total private equity deal value in the country was A$6.1 billion for FY2011, according to the report.

With the two mega-deals separated out, average deal value actually increased 20 percent year-on-year, to an average of A$133 million from A$111 million in the previous fiscal year.

Surveyed respondents also claimed to be focusing much more on “defensive deals – assets with strong performance track records and solid growth prospects”, according to the study. LPs and GPs are all becoming much more selective about what they invest in, and thus deals are taking longer to complete, according to Kar Mei Tang, head of research at AVCAL.

Despite respondents’ high praise of Austrailia’s deal pipeline, sentiment was generally quite negative surrounding both the fundraising and exit environments. Respondents complained about the “large amounts of time and effort required to secure a buyer [for an exit]”, with 55 percent claiming that exit conditions had worsened year-on-year.

Fundraising in 2012 was also down by about half, with $918 million raised for Australia and New Zealand to November, compared to $1.8 billion raised during the full year 2011, according to PE Asia’s data division.