Of all the green shoot of economic recovery we need to watch, one of the best measures to monitor is the behaviour of the super rich. The innate sense of timing that so many wealthy entrepreneurs possess means they are a great bellwether – when they start buying, it’s usually a good indication that we are close to the bottom of the market.
In recent months, the rich have started to emerge from their global financial crisis bomb shelters and are now actively hunting for bargains.
Here are six areas where the rich are finding opportunities.
Commercial property
This is the prime hunting ground for rich entrepreneurs – of the $2.4 billon worth of commercial property that was sold during the first half of 2009, a staggering 60% was purchased by private investors, developers and property syndicates. The key to playing in this segment is debt – the sellers have lots and if you are buyer who has very little borrowings then there are bargains galore.
The latest wealthy entrepreneur to wade into the market was Nathan Werdiger (valued at $521 million on this year’s BRW Rich 200), who paid $18.9 million for an office building in Port Melbourne. The largest purchase of the first half was made by the billionaire property family the Roberts family, who paid $123 million for an office block in Canberra. Entrepreneurs including Phil Wolanski, Kevin Seymour, Clive Palmer, the Tieck family and the Laidlaw family have all bought commercial property in recent months, mainly office buildings.
Resources
The commodities boom is over, but that isn’t stopping rich bargain hunters entering this market. The best recent example is Clive Palmer, who bought BHP Billiton’s Yabulu nickel refinery in early July. The price was undisclosed, but it’s fair to say Palmer got a good deal, given BHP will write down the value of Yabulu assets by $500 million.
It’s also worth noting there’s been a slew of entrepreneurs getting rich this year from coal seam gas, including Paul Fudge, who sold a gas exploration permit for over $600 million.
While buying a nickel refinery or coal seam gas exploration permit is beyond the reach of most investors, it’s worth noting that these entrepreneurs are placing significant, long-term bets on resources. The boom might be over, but don’t discount this sector.
Retail
The banks might have backed right away from the retail sector, but wealthy entrepreneurs are very keen for bargains, particularly targeting those companies that have become insolvent. Earlier this year Kathmandu founder Jan Cameron (fortune of $518 million, according to BRW) bought the Australian Discount Retail group, which operates the discount chains Crazy Clarke’s and Go-Lo. Early this month, Bakers Delight founder Roger Gillespie (who last made the Rich 200 in 2004 with a fortune of $100 million) bought the Victorian discount grocery chain, NQR.
There’s a clear link between these purchases: both are in the more downturn-proof, discount end of the market. Take that as a signal these veteran retailers are betting consumers will stay very thrifty for the next few years.
Media
If the media sector has no future, nobody told Kerry Stokes, who has bought big stakes in Consolidated Media and Telstra this year to go with his stakes in West Australian Newspapers and, of course, Seven Network. Exactly why Stokes is making so many bets on the media sector isn’t completely clear, but it appears that he is predicting a big round of mergers, takeovers and asset sales, and he wants a seat at the table. The short-term outlook for the media sector is difficult, but with a long-term view the share prices of some media companies could well be cheap.
Agriculture
Despite the global recession dampening demand for agricultural products, many wealthy entrepreneurs in this sector feeling quite bullish. Since December last year more than $1.5 billion worth of cattle stations have changed hands at impressive prices.
One of the biggest deals saw James Packer sell his rural holdings to British firm Terra Firma for $425 million. The deal was reportedly done on a multiple of 17 times earnings, which gives some indication of the confidence of the British firm in the long-term health of the agribusiness sector.
Online
While the traditional media sector is struggling, the digital media sector is hanging in there and some wealthy entrepreneurs are willing to take a cheapish punt on the online sector. Michael Hannan, head of the Hannan’s family’s media company IPMG, spent around $3.5 million to buy out the minority shareholders in digital media group BlueFreeway (Hannan has sunk around $40 million into the company over the last few years).
In June, the Victor Smorgon Group-backed investment group Co-Investor announced it would pump around $13 million into BlueFreeway rival, struggling digital group CommQuest.
Both plays are not without risk, as these companies have hemorrhaged money in recent years, but these canny investors clearly think they have got bargains.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
