Australia: the rising tide?

Last September, when Australia’s private equity industry gathered along the pristine shores of the Gold Coast for the annual AVCAL Alpha Conference, two themes loomed large: doubts about the performance of Australian GPs, and concerns over fees and transparency.

This year, AVCAL has moved the event to Melbourne, where most of the country’s big LPs are based – a move that perhaps signals the industry’s need to appease domestic investors who (for various reasons) have become increasingly downbeat about the asset class.

But perhaps there was no need to worry after all – because in the intervening period, fundraising has bounced back markedly in the Australian market.

By the end of July, private equity fundraising in the country had already surpassed the total for the whole of 2013: Australian GPs raised $1.73 billion in the first seven months of 2014, according to PEI’s Research & Analytics division, which is already more than the $1.66 billion raised in the previous year.
And that’s just closed funds; there are also other significant players currently in market with sizeable vehicles.

Pacific Equity Partners, for instance, is targeting A$2 billion ($1.85 billion; €1.38 billion) for its fourth fund and had secured commitments of just under $1.1 billion at the time of its first close at the end of June, according to market sources.

Other funds in market include Wolseley Partners Fund III, a A$300 million mid-market vehicle, the A$200 million Allegro Turnaround and Special Situations Fund II and Next Capital’s A$300 million third fund, according to PEI’s Research & Analytics division.

An uptick in fundraising may in large part be due to a pick-up in the exit market, which has allowed GPs to return money to investors.

“The market has improved in Australia for capital raising,” says Ken Licence, managing director at Syndey-based Principle Advisory Services. “[There has been] strong returns from public markets, as well as considerable returns of cash from existing private equity portfolios. [LPs] that have had long-term programmes have seen significant amounts of cash coming back and that’s given them a good opportunity to think about their portfolio and think about reinvesting with existing or [new] managers.”


In turn, the stream of exits Australian GPs are currently enjoying has been largely driven by an improvement in the country’s capital markets.
“If you have a quality business with a clear narrative and a clear profit trajectory, [it will] sell well in the IPO market,” Tim Sims, co-founder of PEP, explains. “[But investors] have been selective; not every business has been picked up.”

In July, private equity firms TPG and The Carlyle Group launched the initial public offering of Healthscope, an Australian private healthcare provider, issuing up to 1.89 billion shares on the Australian Stock Exchange, according to the IPO prospectus filed.

The business raised A$2.25 billion in the IPO – the largest in Australia over the past four years.

PEP has also floated portfolio companies Veda, Spotless Group and Asaleo in the last nine months – all of which were “very positive” listings for the firm, Sims adds. For example, Veda’s IPO in December 2013 was extremely well-received by the market: at press time, it was trading about 60 percent above its listing price.

Other listings in the past year include Anchorage Capital Partners’ A$520 million listing of Dick Smith, and the A$643 million IPO of Nine Entertainment, which generated healthy returns for owners Apollo Global Management and Oaktree Capital Management (who were previously senior lenders to CVC Capital Partners when the latter owned the business).

While not all the businesses listed at the top of their range, private equity-backed assets in Australia have historically substantially outperformed their non-private equity-backed counterparts post-listing, according to AVCA data released earlier this year.

Although returns from private equity- and non-private equity-backed IPOs in Australia have been consistent with one another over their first year of listing (as of 28 February 2014), the longer-term contrast is stark: private equity-backed IPOs listed since 2003 have grown by an average of 95 percent since listing, compared to a 2.2 percent decline in the latter group, according to data compiled by Rothschild Equity Advisory and the Australian Private Equity and Venture Capital Association.