By Ross Kelly and Cynthia Koons
When it comes to investing in Australia, private-equity firms
are back.
After a lull in activity Down Under in the wake of the 2008
financial crisis, global firms such as KKR & Co. and TPG
Capital are on the hunt again, having recently raised large amounts
of capital to deploy in the Asia-Pacific region. That has inspired
a renaissance of buyout activity in Australia, one of the few
markets in the region where private-equity firms can do full
takeovers.
In the first five months of the year, announced private-equity
takeover deals in the country hit US$5.5 billion, according to
Dealogic, higher than the amount for any full year since 2006.
"Many of the large local and global private-equity firms have
recently raised new funds, so they have significant war chests,"
said John Knox, Credit Suisse's co-head of investment banking in
Australia.
He added that "debt markets are very strong, probably the
strongest they have been since 2007," allowing private-equity firms
to take on more leverage at a lower cost.
Asian and Australian banks have been eager to lend to deals in
recent months, while the U.S. debt markets have become a source of
funding for Australian deals, giving firms a number of options when
it comes to securing debt.
Meanwhile, fundraising in Asia has picked up steam in recent
months, with KKR last year raising a US$6 billion Asia fund, the
biggest ever for the region, and TPG closing a US$3.3 billion fund
last week. Australian private-equity firm Pacific Equity Partners,
or PEP, meanwhile, is currently raising capital for its fifth fund,
potentially targeting around three billion Australian dollars
(US$2.8 billion), a person familiar with the raising said. It will
be competing for capital with Carlyle Group, which is also looking
to raise a US$3.5 billion fund for Asia.
That has led to a spurt of jumbo deals in Australia. Compliance
services provider SAI Global Ltd. said Monday that PEP bid A$1.1
billion (US$1 billion) for it. Last week, KKR bid A$3.05 billion
for Treasury Wine Estates Ltd., the world's second-biggest listed
vintner. Also, TPG bid for the DTZ property services unit of
Australian engineering company UGL Ltd., a person familiar with the
matter said earlier this month, in a deal that could be valued at
more than A$1 billion. Treasury Wine rejected KKR's offer but said
it is open to others, while UGL said it is still assessing the
merits of any offers for DTZ.
"Many companies have been waiting for an opportunity to
restructure their operations by unloading units that are deemed to
be noncore to some of their strategic objectives, and
private-equity funds tend to pick up those types of businesses,"
said Yasser El-Ansary, chief executive of the Australian Private
Equity & Venture Capital Association.
UGL considers DTZ to be a noncore asset, while other companies
across myriad sectors have indicated, too, that they could part
with business units to help bolster their balance sheets.
National airline Qantas Airways Ltd., for example, is
considering a sale of its frequent-flier business, while mining
company BHP Billiton Ltd. is shopping assets considered marginal to
its operations. Australia's slowing mining boom has also thrown up
potential companies private-equity firms can set their sights
on.
"The economic environment in Australia has been relatively
tough, and many believe the outlook is better," Mr. Knox said.
"Some companies haven't been able to grow so they are natural
targets."
Meanwhile, Australia's stock market is up 11% in the past 12
months, after the central bank relaxed interest rates to help spur
growth. The Reserve Bank of Australia has cut interest rates eight
times over the past two years to a record-low 2.5%, helping to
drive activity in the country's housing market and potentially
reigniting the retail sector.
With the stock market hovering near six-year highs,
private-equity firms can now exit from investments through initial
public offerings. That option hasn't been readily available over
the past few years. TPG's disappointing float of department store
Myer in late 2009 left investors wary of new offerings.
The IPO market, however, is starting to show signs of life
again. PEP partially exited from cleaning-and-catering company
Spotless Group Ltd. through an IPO last week and TPG and Carlyle
are considering a float of hospital operator Healthscope in a deal
that could raise around A$5 billion for its private-equity
owners.
New floats help free up capital for private-equity firms to
invest. Moelis & Co. analyst Adam Michell said SAI Global, for
example, might receive rival offers from other private-equity firms
in need of investment opportunities after recent IPOs.
These dynamics should keep private-equity buyouts of Australian
companies robust in the next year.
"It's very likely that in the coming 12 months or so we'll
continue to see a heightened level of deal activity," Mr. El-Ansary
said. "There are a range of industry sectors that have a strong
outlook over the coming years--look, for example, at the level of
deal activity in the health-care and aged-care space."
Write to Ross Kelly at ross.kelly@wsj.com and Cynthia Koons at
cynthia.koons@wsj.com
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