Australian PE deals increase 14%

Australian private equity firms flush with unspent capital have been growing more active, with new investments growing by 14%. Fundraising remains muted.

The Australian private equity market has seen a period of gradual recovery in 2010, according to data released by the Australian Private Equity and Venture Capital Association.

Private equity investment increased by 14 percent year-on-year to $2.1 billion, while venture capital investment declined slightly by 7 percent year-on-year to $187 million. On the divestment front, the trade association noted that there were 60 exits of 49 companies in Fiscal Year 2010, an increase from the 54 exits of 37 companies in 2009.

“Moving forward, there are signs of recovery in private equity activity in FY2010. An increasing number of new deals have been announced. More GPs are now out in the marketplace to raise new commitments after an enforced hiatus from the fundraising market,” said Katherine Woodthorpe, the association’s chief executive, in a statement.

Attracting new investors, however, remained challenging in 2010 for private equity firms in part to the uncertainty surrounding tax issues. The trade association noted that a significant portion of both private equity and venture capital investment was in the form of follow-on investment rather than new deals.

The uncertainty over the tax treatment of private equity proceeds continues to cause concern for LPs and general partners alike.

The Australian Taxation Office has yet to rule on the tax treatment of sale profits for offshore buyout firms. At stake is whether profits from foreign firms will be treated as fully taxed sale profits or tax-free capital gains.

Indeed, the issue arose in 2009 after TPG Capital made a six-fold return on its investment from the sale of Myer, an Australian department store chain.