Private equity and venture capital firms have amassed a record $30 billion in assets under management after a wave of fundraising last year, and are ready to deploy billions in dry powder on local deals.
New investment funds raised by the likes of Melbourne-based BGH Capital, Telstra Ventures, Crescent Capital and Mercury Capital have helped the industry continue a growth path, according to the Australian Investment Council’s latest yearbook, which draws on Preqin data.
Cashed-up private equity and venture capital firms have already had a busy start this year.
A BGH-led consortium secured a takeover of education group Navitas, Vocus has been targeted by EQT Infrastructure, KKR & Co took MYOB private and at the smaller end Adamantem is pursuing an acquisition of Legend Corporation.
In calendar 2018, the yearbook said 17 private capital funds secured $6.6bn from investors, giving the industry $11bn in cash to deploy.
Including funds already poured into portfolio investments, private equity and venture capital manage $30bn, eclipsing the previous high of $26.8bn in 2012.
Australian Investment Council chief Yasser El-Ansary said dwindling returns in other asset classes were prompting higher capital flows into private equity, venture capital and private capital. “Other asset classes are not delivering the outcomes,” he said. “That is a phenomenon we are seeing globally and there is every reason to think it will continue for the foreseeable future.”
Mr El-Ansary admitted, though, the industry had more work to do in engaging with public company targets, despite a string of announced ASX deals this year.
“There is still a knowledge gap that we as an industry have to work hard to fill.”
Fund managers have been cynical of private equity-led floats in the past five years as some have led to big returns for the vendor but burnt investors. Myer and Dick Smith are examples of floats that have tanked and the latter ended up in liquidation.
The yearbook showed Australia-based firms collectively held 2.8 per cent of total private equity and venture capital assets under management for the Asia-Pacific region as at June 2018.
Across all types of deals, 2019 has shown healthy levels of activity.
Announced Australian M&A, including inbound, domestic and outbound deals, amounts to $US47.9bn ($69.11bn) as at May 30, according to data from Refinitiv, formerly Thomson Reuters. That is the highest year-to-date total since 2015.
For private equity transactions, announced deals total $US3.3bn this year, the highest May 30 level in three years. But exits by buyout firms have dipped so far in 2019 from a year earlier.
“They are still having a high degree of success,” King & Wood Mallesons partner Ros Anderson said of local private equity acquisitions.
She expects it will continue to be busy for private deals in the energy and resources sector, while the fallout from the Hayne royal commission may prompt more transactions in financial services.
“People will need to react (to the royal commission) and that may result in increased activity in the financial services space,” Ms Anderson said.
Fellow KWM partner Matthew Coull, who co-wrote a report with Ms Anderson on private deal trends, said even though many private equity firms were flush with cash they were very mindful of lofty valuations.
“They are becoming selective in terms of which ones they look at,” he said, noting most firms looked for a “unique deal angle”.
KWM’s report found private equity accounted for about a third of private transactions they looked at.
They had an even higher presence in lower mid-market deals, ranging from $25 million to $100m, it said.
This article was first published in The Australian.