PEP returns A$550m to investors

The Australian firm has undertaken a series of recapitalisations, including cinema chain Hoyts, ahead of launching its latest fund targeting A$2bn.

In a wave of refinancings, Pacific Equity Partners has returned about A$550 million (€383 million; $516 million) back to its LPs and expects two further refinancings in the coming weeks, Tony Duthie, managing director at the firm, told Private Equity International. 

The firm completed three refinancings and three dividend recapitalisations over the last nine months, taking advantage of improved financing packages that haven’t been available over the preceding few years. 

“Those have allowed us to significantly lower the cost of some of those financing packages and also put in place some less restrictive covenants,” he explained. 

Over July and August, the firm refinanced Australian cinema chain Hoyts, New Zealand biscuit maker Griffin’s Foods and share-registry business Link Group, generating about A$550 million for investors. The firm returned another $35 million back to LPs through performance dividends. 

What has changed here in the last 12 months is that up until we refinanced Hoyts back in August, the market was relatively shut to doing dividend recaps. Pre-financial crisis these sorts of recapitalisations happened fairly regularly.

Tony Duthie, managing director, PEP

Link returned about A$200 million to investors, while Hoyts and Griffin’s returned about A$140 million and A$160 million respectively – all at roughly 1x the firm’s invested equity. 

“The reason we’ve been able to do [this] is partly that the financing conditions are pretty positive at the moment, but also because the underlying performance across the portfolio companies has been really strong over the last 12-18 months, which has allowed us to refinance a number of these businesses.”

The firm also expects to return a further A$400 million to A$450 million back to its LPs by the end of October by refinancing The Spotless Group and Peter’s Ice Cream, with both expected to be done at about 0.6x the firm’s invested capital. 

Duthie explained, “Our investors are always eager to have liquidity in any format at any time, there is no specific pressure [from LPs] now than any other time. What has changed here in the last 12 months is that up until we refinanced Hoyts back in August, the market was relatively shut to doing dividend recaps. Pre-financial crisis these sorts of recapitalisations happened fairly regularly.”

“When we saw the opportunity given the performance of the portfolio and the state of the US financing market to potentially do a recap of Hoyts, we did that in the US and that was the first Australian LBO to be refinanced out of the US and that has really reopened the market here domestically.”

Link and Griffin’s were both subsequently refinanced domestically, with Duthie expecting Spotless to be a domestic recapitalisation as well. 

The return of capital to its LPs comes as PEP gears up to officially launch a $2 billion private equity fund that will have a $1 billion co-investment tranche, according to the firm. Its current fund is deployed enough to raise, but the firm is “working out the timing” for its successor vehicle, Duthie said.