A sizeable private equity deal in the works and speculation over others since January 1 have lawyers agreeing that private equity will play an important role in overall M&A activity in 2012. U.S.-based private equity firm Kohlberg Kravis Roberts (KKR) made an unsolicited approach for clothing retailer and manufacturer Pacific Brands, according to a statement released yesterday, which could value Pacific Brands at A$600 million if it goes ahead. Australasian-based Pacific Equity Partners (PEP) potential buyout of Spotless was also again in the headlines while PaperlinX announced it has been approached by a potential private equity buyer.
Mallesons Stephen Jaques partner Michael Barker says the situation will be harder for corporations than private equity. “I think this year, with share prices being low, it could be quite hard for Australian listed corporates to go and buy things. Private equity funds can readily deploy their money,” he told ALB. Overall he predicted that outside of resources deals private equity will make up at least a quarter of all M&A activity in 2012.
Baker & McKenzie partner Brendan Wykes agreed private equity will be tempted back into the market in 2012, adding that cashed up private equity firms will have a greater incentive to do deals. “I think you’ll find that, after a relatively quiet six months, there will be more incentives for private equity firms to close deals; more willingness to do so. I am optimistic that it will be a stronger six months for private equity if debt continues to be available on similar terms,” he said.
One reason for the added incentive on private equity offered by Barker was the fact there are currently a number of Australian companies in a similar position to Pacific Brands, whose valuations fall into a ‘sweet spot’ for both domestic and foreign private equity houses in terms of deal size which can be funded in the current market environment. “The deal size is several hundred million to one to two billion, that’s a sweet spot of Australian companies. The Australian stock market is suffering like the others, and there comes a point when the price is low and a deal may be done,” he added.
In addition, Wykes said it appears other sectors could open up for private equity buyers, encouraging further activity. “Essentially it could be that sectors that have recently been out of favour, such as retail and manufacturing, will become more attractive again to private equity firms,” he commented. Some of those ‘out of favour’ sectors can also have the potential for private equity houses to provide operational and managerial improvements, according to Barker. “I think the ‘old fashioned businesses’ non-financial services, non-retail, manufacturing, processing style businesses, people have forgotten about them. I also think those are the types of businesses where operational managerial improvement can have results,” he added.
Minter Ellison partners John Steven, Bart Oude-Vrielink, and Joseph Pace are advising Pacific Brands on the KKR deal.
