Australia has seen its private equity deal count plummet amid competition for assets and soaring deal values.
Firms have completed just 20 private equity deals in Australia in 2019, well below the 107 signed last year, according to a report by the Australian Investment Council and EY. Spending could end broadly level, with $10.1 billion deployed so far, compared with $17.5 billion last year.
Seven of the 20 largest private equity transactions over the past five years were completed in 2018 or later, with two of the top five occurring this year. BGH Capital’s $2.1 billion acquisition of education business Navitas in April was the second largest of the five-year period, behind only KKR and Deutsche Bank’s $5.9 billion deal for Latitude Financial Services in 2015.
“The larger end of the market is very competitive and contested. It’s a small space and everything’s been picked over,” Neil Stanford, head of private equity at Australian superannuation fund Hostplus, told Private Equity International.
“Managers talk about deals that have fallen through because an overseas manager has come in, a competitor’s got a strategic advantage over them or they couldn’t compete on price.”
Pricier deals are little surprise given the amount of dry powder in Australia. Fundraising by Australian managers more than doubled to a record $8.3 billion last year across 10 vehicles, according to PEI data. Seven funds exclusively focused on Australia collected $855 million between them, the third-largest total since 2008.
Industry-wide dry powder across Australasian private equity, venture capital, mezzanine and real estate climbed 6 percent to $14.8 billion last year, according to the AIC report.
This is not to mention last year’s pan-Asian fundraising goldrush, which saw Carlyle Group raise $6.55 billion for its Asia Partners V, Hong Kong-headquartered PAG collect $6.1 billion for Asia III and Bain Capital close Asia Fund IV on $4.65 billion. Each of these funds can be deployed opportunistically in Australia.
Global or pan-regional funds may be willing to pay a premium for an Australian asset that catches their eye. BGH, which had previously attempted to delist medical business HealthScope alongside existing investor and anchor investor AustralianSuper, was outbid in January by Canada’s Brookfield Asset Management.
“There does need to be a robust framework around the deployment of capital in the market to ensure good decisions are being made,” AIC chief executive Yasser El-Ansary said. “There may fundamental questions around vulnerability in certain sectors and volatility in global markets, which means in some cases the smart decision is not to deploy capital.”
View our five charts on Australian private equity in 2019 here.