Blog

Appetite for Australian Consumer Sector Is Growing in PE & VC

by Ling Yan Teo

  • 14 Oct 2019
  • PE
  • VC

Consumer discretionary is a key industry for Australian private equity & venture capital, as we explore in the last of our three-part series with the Australian Investment Council

Encompassing the integral parts of everyday life such as food, drink and education, the consumer discretionary sector is an essential part of the Australian ecosystem. Private equity appetite for the sector is boosting growth, and opportunities are arising in smaller sub-sectors in response to increasing consumer demand.

Changing Consumer Behaviour
In July 2019, Australia’s iconic biscuit, the Tim Tam, landed on the plate of KKR. The producer, Arnott’s Biscuits, was acquired in a deal worth $2.2bn, making it the largest private equity-backed consumer discretionary buyout deal in Australia over the past five years. And yet, this deal was in direct contrast to the slowing pace of private equity-backed buyout deals in the sector over 2018. Buyout deal activity in the consumer discretionary industry came off the highs of 2015-2017: aggregate deal value dropped by 22% from $1.6bn in 2017, and the number of completed deals was down by 11%. With technology causing disruption across sectors and consumers altering their purchasing behaviour, traditional retailers faced challenges in growing and expanding into new markets.

However, the grass is greener on the venture capital side. The aggregate value of venture capital deals in the Australian consumer discretionary sector spiked sharply in 2018, achieving a record high of $65mn, as seen in the chart above. The average size of these deals also grew from less than $1mn in 2015 to over $7mn in 2018. Much of the increase was due to TDM Growth Partners’ $44mn investment in Guzman y Gomez, a company that offers Mexican cuisine. It was the largest consumer discretionary venture capital deal in Australia since 2014.

A Boost for Education Services
The food and beverage sub-sector remains a consistent theme in the industry. In direct contrast, the private equity opportunity is expanding fast in the education space due to demand for education services from Asia’s growing middle class. BGH Capital’s AUD 2.1bn acquisition of Navitas, an Australia-based education services provider, is testament to private equity interest in the sub-sector. AustralianSuper participated in the public-to-private transaction, which reflects the fundamental role of superannuation schemes in the investor ecosystem. In fact, superannuation schemes currently account for the largest proportion of Australia-based private equity investors in consumer discretionary, at 68%.

A Strong Pipeline
More than half of Australia-based private equity investors have a preference for the consumer discretionary sector, and capital allocated to consumer discretionary funds has increased steadily as a result. In 2018, $759mn was raised across five funds, marking a five-year high in commitments secured.

There are currently seven Australia-based private equity funds in market targeting investments in the consumer discretionary sector, looking to raise a total of $1.1bn in investor commitments. These funds are utilizing strategies ranging from early stage to buyout, demonstrating the wide array of opportunities that are available within the consumer discretionary sector. If these funds manage to successfully close on target by the end of the year, capital secured in 2019 would far surpass the full-year total for 2018.

To read more highlights of the private equity & venture capital industry in Australia, please take a look at our 2019 Yearbook.

(NB. All $ figures are in USD unless otherwise stated.)

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