Private plays in favour

A largely hidden side of wealth creation is in the private sector, where successful entrepreneurs have built considerable businesses, in many cases with their families or over more than one generation.

The value of these private empires is often speculated upon, based on market size, information from competitors, or the occasional glimpse at the books.

But the booming times have changed that to a certain degree, with numerous families or partnerships taking the opportunity of high asset values over the past 18 months to cash in.

In many cases these sales have been to a listed company, and the deal has been substantial enough to warrant the release of the price, getting around the discreet nature of private transactions where the details are often undisclosed.

A good example is the most recent of these sales, the $81 million purchase of internet service provider Westnet by listed competitor iiNet Ltd.

Westnet was started by the Brown family and Barry Mitchell, who were also partners in Geraldton-based IT services company Mtichell & Brown.

Westnet will bring across 215,000 active services, raising iiNet's total to over 680,000.

To fund the deal, iiNet raised almost $42 million through the placement of 25.6 million ordinary shares at $1.60 per share, while the remainder was raised via cash and debt.

Westnet chief Peter Brown and his counterpart at iiNet, Michael Malone, were both, coincidently, past winners of WA Business News 40under40 awards, as was Julie Smith-Massara, one of the founders of Australian Mine Services, which was sold to Leighton Holdings Ltd subsidiary HWE earlier this year for an estimated $20 million.

Westnet was a quiet achiever, gaining a reputation for providing internet services in the bush at a time when most of the majors were focused on the big cities.

As a result, it emerged as one of the nation's top 10 ISPs by 2004.

While the details of the deal and how much the net result may be is still a mystery in many of these transactions, the scale of the numbers involved does provide some insight into the wealth these businesspeople have created - often in just one generation.

A significant number of the deals listed have occurred in the engineering services sector, which has boomed on the back of resources sector growth.

Many of these players have recognised the high growth that has made their businesses valuable also threatens the long-term viability of the enterprises they established.

In numerous cases, the sellers have realised not just that decades of hard work have wearied them enough to take their profits and preserve their wealth, but also that a private business may not have the wherewithal to compete as these operations jump to another level.

Numerous vendors have stated that they needed capital to grow the business.

Asset rich they may be, but they were less inclined to use debt to make the next leap.

Also, more career-orientated staff were increasingly seeking opportunities that a privately held, geographically isolated group struggled to offer.

And then there was the price that big corporates are prepared to pay when they see the only way to break into a market and generate growth is by buying a local player.

A good example has been the activity in the assay laboratories, a sector once dominated by independently owned players.

Kalassay, Genalysis and Ultra Trace have all sold in the past 18 months, falling to much larger businesses who wanted a position in the booming Western Australian market but could also continue to fund the big capital costs required to keep pace in the industry.