Equity funds hold on to private ventures

Private equity funds are turning into long-term owners of some major WA businesses, after being unable to complete their planned exits.

One month ago, the private equity funds that own Alinta Energy, led by TPG Capital, had to make a big call.

They had been trying to sell Alinta, after hiring Lazard to assist them in a deal speculated to be worth up to $5 billion.

However, they came to the same conclusion that several other private equity funds have reached over the past few years; they couldn’t get the price they wanted through a stock market float and so decided to hang on to the business.
It’s a recurring theme.

Gresham Private Equity tried to sell underground mining contractor Barminco in 2011, and KKR tried to sell trucking and logistics group BIS Industries in 2013.

This is a problem for private equity funds, as their normal time horizon for each investment is three to five years.

Their preferred model is to buy an underperforming business, restructure its operations, and then exit, typically though either a trade sale or stock market float.

Crowded market

More than a dozen large private businesses in Western Australia are currently backed by private equity funds (see table).

They include Balcatta-based Quick Service Restaurant Holdings, the company behind 600 Red Rooster, Oporto and Chicken Treat stores across Australia.

Iconic WA businesses such as Dome Coffees Australia, dairy producer Brownes, and the Houghton wine brand are also owned by private equity funds.

The use of private equity adds to the variety of ownership structures employed by WA’s major private companies.

WA’s largest private company - according to the BNiQ database prepared by Business News - is building and construction group BGC, which is owned by the heirs to Len Buckeridge, who passed away nearly one year ago.

The company is currently led by managing director Sam Buckeridge, one of six children, and Len Buckeridge’s stepson Julian Ambrose, who also holds the title of managing director.

The state’s second largest private company is Gina Rinehart’s Hancock Prospecting.

Her ability to retain full ownership depends on the outcome of legal action taken by two of her four children, including her son John Hancock.

Low-profile mining contractor Byrnecut, which is ranked as WA’s fifth-largest private company, has tapped into external capital, but not through a private equity fund.

Claudio Thyssen, who is part of the famous German family, invested in Byrnecut in 1991 through his company, Thyssen Schachtbau, and is still there 24 years later.

Teaming up

Some businesses have ended up being owned by a succession of private equity funds.

Among them is Quick Service Restaurant Holdings, which was acquired by Archer Capital in June 2011.

Archer bought the business from Champ Private Equity, which had acquired the franchise group four years earlier from its founders, including Nick Tana and Frank Romano.

Another example is Vesco Foods (formerly Kailis & France Foods), which counts Champ Private Equity and Foundation Capital as former shareholders.

Catalyst Investment Managers became the major shareholder in 2013 when it backed the simultaneous purchase and merger of Vesco Foods and privately owned Brisbane company Prepared Foods Australia.

The merged group continues to be run by Perth-based managing director Bernie Pummell, who is also a shareholder.

Dome Coffees takes the cake when it comes to multiple private equity owners.

Archer Capital took a 50 per cent stake in 2000 and sold the business to Malaysia-based Navis Capital three years later.

Navis, in turn, sold a controlling stake to the Wyllie Group’s Viburnum Funds in 2008, which held the business for six years before selling it back to Navis last September.

National Lifestyle Villages shows there is more than one way to tap into the private equity market.

The property developer and retirement village operator announced an innovative deal last November, which involved private equity group Blackstone investing $150 million in the business.

NLV managing director John Wood said the Blackstone investment was backed by the rental payments made by the 3,000 residents of its lifestyle villages.

“It’s an opportunity for them to invest in a mature, recurring income stream, which frees up capital to allow us to invest in the development of our villages,” Mr Wood told Business News at the time.

The deal allowed Mr Wood to retain an 80 per cent shareholding in the business.

PERTH-BASED: Bernie Pummell is managing director of and a shareholder in Vesco Foods.

Property developer Pindan has found other ways to tap into external capital.

Pindan established Otan Property Funds Management in 2009, as a vehicle for raising money for its development projects.

The funding arm was rebranded last year as Pindan Capital, which last week announced the opening of new offices in Sydney and Shanghai.

Pindan is currently ranked as WA’s 14th largest company and is likely to move into the top 10 after predicting its annual turnover would reach $650 million in the current financial year.

Another fast-growing business is Bhagwan Marine, which has been backed by Catalyst Investment Managers since 2012.

Bhagwan, which is still run by founder Loui Kannakoski, doubled its turnover last year to $244 million, making it the 23rd-largest private company on the BNiQ database.

Perth Airport, which is ranked as WA’s 15th-largest private company, provides another variation on the ownership models discussed above.

It has seven shareholders, all of which are long-term institutional investors or superannuation funds.

Specialist infrastructure investment group Hastings, owned by Westpac, runs three of those funds, which collectively own 59.9 per cent of the airport.

Perth Airport’s second-biggest shareholder is effectively the federal government, through its Future Fund, which has a 29.7 per cent stake.