Global firms were behind the largest private equity deals last year, but local specialists maintain their edge in Australia – and some are punching above their weight
Global firms were behind the largest private equity deals last year, but local specialists maintain their edge in Australia – and some are punching above their weight
At first glance, private equity majors are leading the buyout market in Australia. Bain Capital’s AUD 3.5bn recapitalization of Virgin Australia was the country’s largest buyout deal in 2020, and KKR’s AUD 1.7bn acquisition of a 55% stake in Colonial First State Investments was another mega deal of note. But while global private equity giants like Bain, KKR, TPG, Carlyle, and Blackstone established a presence in Australia at least 10 years ago, local GPs continue to drive most of the buyout activity in the country, and Australia remains an insider’s market.
Melbourne-based BGH Capital, for instance, stands out as the most active GP by deal count in 2020. Ben Gray, Joint Founding Partner of BGH Capital, notes: “During 2020, we completed three new investments with an enterprise value of between AUD 200mn and AUD 1bn and a further smaller high-growth investment. The rest of our peers combined only completed eight, of which four were executed by global firms.”
BGH’s deals last year were substantial and varied. They included investments in Healius Primary Care, Australia’s largest network of medical and dental centers, and Abano Healthcare Group, the largest corporate dental network in Australia and New Zealand. BGH also muscled out local rival Pacific Equity Partners (PEP) after PEP made an unsolicited takeover offer for Australia’s largest theme park and cinema operator, Village Roadshow, in an AUD 758mn takeover in December last year.
Separately, global GPs sealed two deals in the same period. These were TPG’s AUD 250mn acquisition of bowling alleys and mini-golf company Funlab, which was widely marketed, and Blackstone’s purchase of a 9.99% stake in ASX-listed gaming group Crown Resorts for AUD 552mn. Prior to that, Blackstone had not completed any transactions in its core private equity business in Australia since 2017.
Among the global GPs with a presence in Australia, KKR is the most active, having executed sizable investments in Arnott’s Biscuits and MYOB in recent years. Generally, however, anecdotal evidence suggests that pan-regional GPs tend to focus their attention on higher-growth markets like China and India, or Southeast Asia, while making just one or two investments in Australia per fund.
Pan-regional GPs also tend to have small local teams led by just one or two partners in Australia, which may explain why they rely more on auctions than their local counterparts. For example, Carlyle executed two deals in the past four years – Accolade Wines in 2018 and iNova Pharmaceuticals (alongside PEP) in 2017 – both of which were auctions with deal sizes less than AUD 1bn.
By contrast, Australian GPs with deeper networks and local expertise have access to different opportunities, Gray notes. BGH raised AUD 2.6bn in its maiden fund, BGH Fund I, but has one of the largest teams on the ground in Australia, with 30 staff, including eight partners. BGH took over Perth-based education provider Navitas in an AUD 2.1bn deal in 2019. Gray adds: “This was an exclusive transaction where we partnered with the founder and major shareholder to buy out the other shareholders with no realistic ability for global GPs to compete.”
As Fig. 1 shows, private equity deal-making in Australia slowed down in 2020, in line with global trends. But Gray is optimistic of a rebound: “We don’t see any reason why market activity won’t return to the long-term average of 80-100 deals a year.”
Meanwhile, competition for deals in Australia is expected to remain less competitive than in Asia-Pacific’s higher-growth markets, as larger funds focus on growing their exposure to countries like China and India. This means that Australian private equity will remain an insider’s market, where opportunities abound for GPs with strong proprietary deal flow.