Private equity firms are tipped to cast their eye on down-and-out retailers, health care companies and businesses linked to the booming resources industry, after the year ended by Champ Private Equity nabbing a majority stake in a hard-hat retailer.
According to a report by the Australian Private Equity and Venture Capital Association (AVCAL), the total enterprise value of transactions soared to $10.2 billion last year, from $3.9 billion the previous year.
The report comes just after the sale of safety products retailer and hirer RSEA to Champ Ventures for an undisclosed price.
Champ Ventures took a 79% stake in the business, which has annual revenue of $65 million and dozens of locations across Australia.
Champ Ventures director Paul Readdy is quoted saying the business “is extremely well-placed particularly because the area of resources and infrastructure have the wind behind them.” The Champ unit plans to roll out stores across the country.
Looking ahead, AVCAL says businesses linked to resources and healthcare are “likely to be strong target areas for growth”.
“Sectors which have underperformed over the last few years (eg. retail) may also present new opportunities for investment as these sectors bottom out and revert to growth,” it says.
AVCAL chief executive Katherine Woodthorpe says the rise was driven by the “gradual return of larger deals and continued resilience in the mid-market segment”.
The report finds that the average deal was worth $234 million in the year to June 2011, almost four times the 2010 figure of $60 million.
The healthcare, energy and consumer goods sectors also saw an increase in investment, the report said, as “investors backed transactions exposed to the strong underlying macro trends in these sectors”.
The survey of Australian venture capital and private equity deal activity said the 2011 financial year “demonstrated positive signs of renewed activity characterised by ‘good deals done at good prices’ and once global economic uncertainty recedes, deal activity is anticipated to further improve”.
“Partly as a result of these risks, the focus of deal making has reverted to industries and companies with strong fundamentals and traditional approaches to value creation, with PE funds working closely with management teams to drive profitability and growth within the business,” the report, entitled Deals Metrics Survey, says.
But Woodthorpe says venture capital remains challenged, with older funds reaching the end of their lives and fewer and smaller funds being established. Over the year, VC deals were fewer and smaller.
Graeme Browning, Ernst & Young’s Oceania Transaction Advisory Services Leader, agrees that capital-stretched SMEs with a good growth story shouldn’t write off private equity, particularly with the initial public offering market remaining weak and conservatism among listed companies.
“It won’t be for everyone, but private equity is cashed-up, banks are prepared to support private equity deals, and these guys are professional investors so they invest through all cycles,” Browning told SmartCompany last month.
According to the Australian Financial Review, $11 billion worth of private equity assets were sold through 2011.
Deals last year included Pacific Equity Partners’ float of Collins Foods Group and sale of 50% of SCA Hygiene Australasia, Quadrant Private Equity’s sale of Quick Service Restaurant to Archer Capital, and Archer picking up a 60% stake in the V8 Supercars motor sport business.
Australia’s number one fruit and vegetable group Costa Group also sold a 50% stake to US private equity firm Paine & Partners in 2011, and SME-focused private equity firm Anacacia Capital took majority stakes in commercial plumber Planet Services Group and Roofsafe Industrial Safety Enterprises.
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