Australia’s next generation of managers

Succession events can make or break a private equity firm. Nowhere is this more evident than in Australia.

Archer Capital, one of the country’s largest private equity managers, is the latest to fall foul of a leadership change. The firm paused its fundraising plans last year citing succession issues, but returned to market in April seeking one-fifth of its original A$1.5 billion ($1.1 billion; €900 million) target.

Succession has long plagued Australia’s established firms. CHAMP Private Equity closed its fourth fund on less than half of its initial A$1.5 billion target in 2017 following a succession event in 2014. Limited partners were understood to have been among the driving force in its decision to slash the target as they assessed the new leadership team.

CHAMP Ventures, meanwhile, decided to wind down in 2016 after the challenge proved insurmountable.

The country isn’t alone in finding transfers of power difficult. Although nearly one-third of professionals anticipate a succession-led key person event at their firm in the next five years, 42 percent do not feel their business has an adequate plan in place, according to Investec data from February.

But succession problems don’t have to mean the end of the line; Australia has seen a host of players either hoping to take advantage of a pullback from more established firms, or apply what the new guard’s founders learnt while working for them. Here are five of Australia’s newest private equity shops.

Adamantem Capital

The firm was founded in 2016 by a pair of former dealmakers at Pacific Equity Partners – one of the country’s largest private equity managers.

The Sydney-headquartered firm has since raised A$600 million for its debut fund – a 2017-vintage – with commitments from the likes of New York State Common Retirement Fund and Australia’s Vantage Asset Management, according to PEI data.

Adamantem has wasted no time in putting this capital to work: it already holds five portfolio companies across New Zealand and Australia, including retirement services business Heritage Lifecare, horse feed producer Hygain and meat processor Heller’s.

It hasn’t been smooth sailing. In April 2017, PEP filed a claim alleging the Adamantem team might have been using confidential information from their time at the firm to promote their own fund and requested the marketing materials used in its fundraising.

The case was dismissed by the New South Wales Supreme Court in November that year on the basis that PEP had “failed to demonstrate to a sufficient level of plausibility that it ‘may’ have a valid claim for breach of the employment agreements to entitle it to preliminary discovery in support of such a claim”.

Odyssey Private Equity

The firm is a reunion of Australian PE veterans, having been founded by Quadrant Private Equity founder George Penklis and three former CHAMP Ventures executives in 2016.

Penklis returned from semi-retirement to raise A$275 million for Odyssey’s debut fund, which closed in February 2017. Its limited partners were predominantly domestic, including superannuation funds and fund of funds Roc Partners. The firm has already completed four investments, including food supplier Sushi Sushi, digital infrastructure business Minesite Technologies and outdoor recreation company Adventure Operations, according to its website.

Potentia Capital

Founded in 2014 by Andrew Gray, Potentia Capital benefits from his prior experience at domestic powerhouse Archer Capital and sector knowledge accrued over five years at US technology giant Francisco Partners.

The Sydney-based firm provides growth and acquisition capital for software, tech-enabled services and technology businesses headquartered in Australia and New Zealand with enterprise values of A$50 million to A$300 million. It has invested A$100 million across three platform deals and three bolt-on acquisitions.

Potentia I is the country’s first dedicated mid-market tech fund, seeking between A$300 million and A$400 million. It held a first close on A$180 million early this month and expects a final close by year-end.

Bridgeport Capital

David Plumridge and Brendan Sulway, two former executives from private equity-cum-real estate fund manager Hawkesbridge Capital founded Bridgeport in 2015. They returned the following year to acquire their previous employer’s private equity unit, which had not raised a fund since 2007.

The deal-by-deal firm has made several investments as an independent manager, including Australian electricity network auditor Underground Cable Systems and Queensland diagnostic imaging business Exact Radiology. Its portfolio also includes four ex-Hawkesbridge assets, including beverage company Pureau, hospitality group Trippas White and fencing business Coleman’s.

Liverpool Partners

The firm is part of a small cohort of Australian managers opting to go deal-by-deal.

The firm was founded in 2012 by Jonathan Lim, a former investment director at Sydney’s Arowana Capital, and Craig Tocknell, a former manager at London asset manager M&G Investments. It has completed three deals and is expected to reach five by year-end. Only then will it come to market with its debut vehicle, for which it is expected to seek between A$200 million and $300 million, PEI reported in May.

So far its investments have been partly funded by a significantly smaller vehicle comprising commitments from Liverpool’s founders and London-headquartered fund of funds Stafford Capital Partners. The firm also sources deal capital from predominantly Asian and European institutional investors.

Liverpool’s portfolio includes Australian health company Zenitas, which it delisted alongside fellow emerging manager Adamantem Partners last year.

Surviving succession

CHAMP Private Equity looks to have finally navigated its succession woes.

The firm intends to return to market with Fund V in the second half of 2019, seeking between A$800 million and A$900 million, PEI reported in June.

The numbers suggest CHAMP has found its sweet spot outside of the fiercely competitive large-cap space: Fund IV is understood to be running at a 30 percent net IRR across nine investments and two exits.

CHAMP is proof that effective handovers can be a lengthy process. In February 2014, CHAMP Private Equity founders Bill Ferris and Joe Skrzynski gave the reins to John Haddock, appointing him chief executive and CIO.

Although Haddock oversaw the firm’s day-to-day management activities and was driving the investment programme, both Ferris and Skrzynski remained at the firm as co-founding partners and co-chairmen of CHAMP’s board of directors and investment committee.

The two founders officially departed in 2018 when they stepped back from the board and reportedly offloaded their shares in the business, paving the way for Haddock to return with Fund V.