13/08/2008 - 22:00

Private equity shows strength

13/08/2008 - 22:00


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Western Australia's fledgling private equity market is gaining traction, with a growing number of transactions this calendar year coinciding with a downturn in stock market listings.

Private equity shows strength

Western Australia's fledgling private equity market is gaining traction, with a growing number of transactions this calendar year coinciding with a downturn in stock market listings.

The change is reflected in an Ernst & Young study of Australia's private equity sector, which found that the sector has performed well in the booming mergers and acquisitions market over the past three years, outperforming its public counterpart.

The report reveals that although the private equity phenomenon hit Australia later than other western economies, Australia has "caught up quickly" with the sector, accounting for 27 per cent of mergers and acquisitions in 2007, up from 8 per cent in 2005.

Ernst & Young reviewed all 2007 Australian private equity exits with initial investment values of more than $50 million, covering 13, or about 65 per cent, of exits last year.

It found that market nimbleness, broad experience with management, increasing prowess at operational improvements, proactive buying and an ownership model that set a straightforward goal within a defined timeframe all combined to accelerate business growth.

Recent acquisitions in Perth are prime examples of what's driving the sector, reinforcing the findings that private equity firms have the ability to recognise solid buying opportunities, are clearly cashed up and actively looking in the market.

The aggressive push of newcomer InGlobo Asset Management into the market in April has shown the proactive approach of WA firms taking advantage of the growing number of businesses turning their backs on public listing.

Subiaco-based InGlobo made its debut purchase with Integrated Industrial Mining Supply and is actively seeking more acquisitions over the coming months.

Perth-based Primewest Capital's May acquisition of international mining supplier ADG Global Supply and Gresham Private Equity's purchase of five logistics companies in May are further examples of firms recognising and capitalising on good buying opportunities.

In February, private equity investor Viburnum Funds backed a group of management and staff, led by chief executive Nigel Oakey, to acquire control of WA franchise Dome Coffees from Asia-based Navis Capital Partners.

Viburnum, which is backed by the Wyllie Group, acquired a majority stake in Dome through its Viburnum Private Equity Fund No. 1.

Viburnum managing director Marshall Allen said the private equity market had evolved in WA, with companies which would have listed several years ago now steering away from the stockmarket.

"There have been good opportunities for the private equity market in that the ASX has dried up as a source of capital," he said.

Mr Allen said the Dome acquisition typified the high-value opportunities that existed in the WA market.

Primewest co-founder Lui Giuliani said the firm, which undertakes transactions between $10 million and $200 million, was attempting to fill the spaces opened up in the under $50 million category.

Mr Giuliani said having an experienced board of entrepreneurs gave the firm a fresh outlook to acquiring emerging companies.

"There are a lot of really good businesses in the $10 million to $50 million valuation bracket," he told WA Business News.

"I think what we're seeing in this space are some great emerging businesses, not only in WA, but internationally."

In six months, Primewest has finalised two transactions - the privately-owned solar panel provider Solar PV in March this year and its latest transaction, ADG Global Supply, which is now a listed company.

The Ernst & Young study predicts such growth in the private equity sector can be sustained with ownership and value-adding from experienced management expected to become major focal points of the sector.

Ernst & Young partner and private equity leader Bryan Zekulich said with $10 billion raised in Australia for private equity over the past three years, the new study debunks the popular perception that cheap debt and cost-cutting are the chief drivers of private equity success.

"More than 70 per cent of growth in these companies came from organic revenue growth or acquisition. Private equity success was based on business fundamentals, creating value from good management," Mr Zekulich said.


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