The Australian and global private equity sectors have been busy selling and buying assets in the past 12 months, and the activity is unlikely to slow down any time soon according to lawyers. “Certainly in the last 12 to 18 months we have been very busy acting for private equity firms looking to sell or otherwise dispose of assets,” said Baker & McKenzie head of global private equity Mark McNamara.
According to the industry lobby group, the Australian Private Equity & Venture Capital Association, sales by Australia’s A$23 billion private equity sector jumped by 46 percent during the 2011 financial year. While there are a variety of reasons for the upsurge Corrs Chambers Westgarth head of private equity, Richard Lewis, said for the most part it’s because of the backlog of assets, which private equity fund managers would ideally have exited by way of IPO, but were unable to. “Some funds have had to take alternative exits, including secondary buyouts to other private equity fund managers or trade sales,” said Lewis.
McNamara says it is also standard for assets to be sold within the three to five year cycle, which many of them are now in. “That’s part of the life cycle of funds – they get sold in that time frame” he said.
For private equity funds preparing to undertake their next round of fundraising, it is also much easier to raise new funds if investors have received their money back from previous investments by way of a sale. “One driver behind the increased exits by private equity is the much more challenging fund raising market and the need for some managers to demonstrate good exits to assist them in raising their next fund,” said Lewis.
He adds that the reduction in new funding commitments from local pension funds and other institutions has forced some fund managers to look overseas for investors for the first time: “In the previous financial year almost half of funds raised came by Australian funds came from foreign investors.”
In addition to trade sales there has also been an increase in secondary deals: “In the past six-to-eight months we have seen a real increase in secondary buyouts… Certainly that has grown and will no doubt continue to grow,” said McNamara. Recent data confirms this trend with secondary buyouts comprising more than 10 percent of all divestments in FY2011, which according to Lewis “is an all time high”.
It’s not just sales either which are keeping private equity lawyers busy. “New investment activity is also increasing, with a more than 40 percent increase in funds invested in FY11 compared to FY10,” said Lewis. This is to a large extent related to an increasing number of large buyouts by U.S. and other global funds which see Australia as an attractive place to invest in the current global economic climate according to Lewis. “We see this trend continuing, with a number of U.S. funds new to the Australian market looking at Australian deals in the mid market and above,” he added.
McNamara agrees that more acquisition activity by PE firms is likely, “ as long as the banks keep lending”.
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