The Australian private equity industry is faced with plenty of turmoil. Funds have plenty of capital to deploy, but the competitive market is making it hard to find enough profitable acquisitions. On top of this, the fee structure is under scrutiny is Australia, just like it is elsewhere in the world.
The above topics are surely one of the key debating points at the upcoming Australian Private Equity & Venture Capital Association Limited (AVCAL) conference this week. So, what do the numbers say about the current industry outlook?
Australian law firm Minter Ellison 's latest report shows deal activity in Australia has slowed down, despite a relatively good start. For the 2014-15 year, the first half saw a number of small deals, meaning deal value was less than AU$100 million, but the activity dropped during the latter six months.
The report believes the reason was mainly down to a short supply of suitable assets, and this could be a problem for Australian funds until the end of the year. The situation is not made any easier by the depreciation of the Australian dollar and the increasingly competitive market.
Ricky Casali, a partner at Minter Ellison, was quoted in the Sydney Morning Herald stating, “There is an abundance of capital and a shortage of quality assets”. According to the report, the positive sectors to focus on remain healthcare, education and transport. The firm also believes that the typically strong sectors of finance and the retail sector will most likely bounce back in the next nine months.
The AVCAL has also released some data, which shows that private equity transactions only accounted for 4% of Australia’s deals in 2014-15. This is a significant drop to the nearly 10% average of the pas...
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...ond phase expansion.
Although Australian PE funds are sitting on an estimated AU$7 to AU$8 billion of dry powder, the lucrative exits have certainly helped keep fundraising activity strong. Australia’s largest buyout firm, Pacific Equity Partners, has reportedly closed its fifth fund at AU$2.1 billion.
Investor appetite isn’t surprising as the country’s firms have been able to provide better returns to listed equities. AVCAL and Cambridge Associates’ data shows private equity returned 13.3% over a five-year period, while listed equities returned just 8.3%. Furthermore, the year to March saw funds return on average 25.7%, while the overall return for S&P/ASX 300 stood at 13.9%.
This could mean an influx of better investment opportunities. The firms are certainly ready for it. If you’d like to see deal opportunities in Australia, check out the DealMarket platform.
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