Transaction news: March 2014

PE activity expected to rise with Government assets on the agenda

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Private equity (PE) activity is expected to pick up more momentum through 2014, with funds able to look at exits through IPO, trade and secondary sales, in addition to new investment opportunities.

EY’s report, A maturing market: Asia-Pacific private equity outlook 2014, developed in collaboration with Mergermarket, shows 78% of local PE funds surveyed expect private equity activity in Australia to increase this year.

EY Private Equity Leader Bryan Zekulich says, “We began to see growing momentum around exits in 2013 and the trend is continuing. The IPO window which opened late last year is expected to open again later this year. In addition, corporates’ ability to pay competitive prices, through synergy and strategic value creation, should support strong pricing and provide positive tension for dual track processes.”

Of Australian PE funds surveyed by EY:

  • 55% expect trade sales to increase
  • 56% expect secondary buyouts to increase
  • 13% expect IPO opportunities to increase

On the buy side, Zekulich says pressure is increasing on PE funds to secure assets.

"Opportunities have been limited in the past few years but the better outlook and a low growth GDP environment may encourage corporates looking to divest non-core or under-performing assets.”

Services businesses, health, and wholesale retail businesses are likely to remain particularly attractive to PE. Specialist resources funds are also expected to be active in Australia and PE will be assessing opportunities from government privatisation of assets and services.

"Competition for assets is likely to increase. The reduction in the Australian dollar means there is added attraction for overseas PE, specialist mezzanine funds, and trade buyers looking at geographical or strategic expansion,” says Zekulich.

“This competition will support the current multiples and improve the timing of deals. That means PE funds are going to need to get in earlier and provide a better value proposition to management.” 

Zekulich says the fund-raising environment has improved for PE, competition from Super funds and a trend towards deal by deal financing will result in continuing competition for funds.

However, PE has demonstrated strong, above market returns over the past 10 years and the PE value proposition remains compelling.