PRINT THIS PAGE Leaping to prominence16/05/2006. Source: Asia Private Equity Review (APER).
Australia is assuming an increasingly pronounced profile in buy-out markets outside of the country, says the Asia Private Equity Review. There have been a number of defining movements suggesting Australia's rising role in this sector. For nearly a decade, the Australian private equity industry has largely been regarded as a market of its own with few connections to its regional or global counterparts. Following a series of outstanding returns achieved by regional buyout investors since 2004, the country has emerged as pan-Asia buyout houses' favoured investment destination.
The recent naming of Macquarie Bank as the possible acquirer of The Carlyle Group's Taiwan Broadband Communications is the latest confirmation that Australian institutions are ready to assume a more prominent role in the global buyout market. During the year, there have been a number of defining movements suggesting Australia's rising role on the global buyout stage.
Drawing Regional Heavy Weights
Australia emerged as an investment destination when pan-Asian buyout houses began to seek opportunities in the region in late 1999. Since then, four of Asia's five largest buyout firms have established an Australian address, underscoring the country's importance in regional buyout firms' investment expedition map. Affinity Equity Partners and CVC Asia Pacific were the earliest to have created their foothold, with Newbridge Capital and The Carlyle Group being the most recent entrants. CCMP Capital Asia is expected to relocate one of its partners Down Under shortly. The largest island in the southern hemisphere is the only buyout market that houses Asia's five leading and most active buyout investment firms, further evidencing Australia's central role in Asian buyouts.
There are compelling reasons for pan-Asian buyout firms' unfaltering faith in Australia. With the exception of Impulse Airlines, all companies committed by pan-Asian buyout firms since 2000 have richly rewarded their respective investors, with Pacific Brands and Just Group being the most illustrious examples. Pacific Brands returned over seven times of invested capital to its investors while Just Group generated four times. In April this year, CVC Asia Pacific, Ironbridge Capital Pty Ltd. and GIC Special Investments Pte Ltd. nearly doubled their original invested capital when they sold their holdings in Affinity Healthcare Ltd., after having held the hospital operator for 18 months.
In October, the UK-based Prudential Corp. celebrated the sale of Taverner Hotel Group as its Australia subsidiary, Catalyst Investment Managers Pty Ltd., disposed of the hotel operator and is estimated to have earned an internal rate of return of 26% for an investment held for just over four years. In August, DB Capital Partners, the private equity investment arm of Australia's Deutsche Asset Management sold Pacific Handling Solutions Pty Ltd. (trading as Loscam) to Affinity Equity Partners. This secondary buyout is estimated to have returned 4.5-fold of the invested capital to DB Capital Partners' coffers. It is one of the best buyout divestment results in 2005.
Winning Factors
Australia's well-developed private equity market infrastructure offers not only consistent returns, but a new dimension of opportunities to other Asian markets. In taking up a controlling stake of Air International Thermal Holdings, the subsidiary of Air International Group, CCMP Capital Asia is entering the China market via its investee company that is based in Australia. The acquired company supplies heating and cooling units to automobiles with operations in China, Australia and USA. As China will be the source of engineering as well manufacturing, Air International Thermal Holdings is expected to relocate its engineering centre to China, as acknowledged in a statement made by Futuris Corp., the ultimate parent organisation of Air International Group, at its 2004 annual general meeting.
Australia's buyout investors are reaping the fruit coming from an investment community that advocates international practices. Its buyout funds are enlisting a growing list of non-domestic limited partners. CHAMP Private Equity, which announced the final closing of Australia's largest buyout fund at A$950 million (US$730 million) this year, received approximately one third of its commitments from the USA and another third from Europe. Both Singapore government's GIC Special Investments and the Netherlands-based AlpInvest Partners have subscribed to Ironbridge Capital's maiden fund.
In response to the increasingly globalised market, Australia's buyout investors are broadening their investment parameters beyond home boundaries. In June this year, Macquarie Capital Alliance Group and Macquarie Bank deployed a combined US$297 million to take over BBC Broadcast, a subsidiary of the BBC Corp. Hailed as a landmark buyout investment, BBC Broadcast was the first UK-based company acquired by an Australia-based group.
The Sydney Morning Herald described the transaction as "turning the tables on Australia's colonial history".
The names of Australia's domestic buyout firms are increasingly associated with companies outside of the land where the kangaroos live. In the beginning of the fourth quarter this year, Ironbridge Capital completed its acquisition of Barbeques Galore, a NASDAQ-listed company that has retail operations in both the USA and Australia. Most recently, Catalyst Investment Managers was bidding for Waco International, a leading scaffolding company in South Africa while Macquarie Bank is reportedly close to acquiring Taiwan Broadband Communications, one of the four major cable TV operators in the island.
Observation
As the global investment community intensifies their activities in Australia, Asia's most developed private equity market is becoming increasingly competitive for buyout firms to consummate transactions. The Carlyle Group, despite having set up an operation in Australia, has yet to log one Australian company in its deal book. Newbridge Capital lost a formidable bidding war when it intended to take over Australian Leisure and Hospitality Group.
The private equity house was outbid by Woolworths Ltd. which was willing to pay premium price for its acquisition target. CVC Asia Pacific ultimately missed out in its bid to become the owners of 14 hospitals from Affinity Healthcare for the second time. The most recent consortium that encountered rejection was in the US$2.6 billion bid for Goodman Fielder, which was led by Bain Capital, with Goldman Sachs and Australia-based Pacific Equity Partners joining the pact. While the grass may seem green over the Australian fence, it will take more than a kangaroo hop to clinch a deal and secure satisfactory returns.
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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