The good, the bad and the ugly in 2009:
2009 has been a very quiet year for Australian private equity. Although some had predicted we would see a torrent of cheap acquisition opportunities, we were of the view that the very healthy state of corporate balance sheets in Australia would mean sellers would simply exit the market, We have been proved correct in this with deal volumes down 90 percent this year.
However, there have been opportunities in the mid-market, where private equity has been able to exploit overleveraged public companies or where buy-and-build deals have been possible, because entry multiples for smaller businesses have fallen much more than larger assets.
Changes for 2010:
2010 will be more like 2009 than 2006/07! We see a gradual loosening of credit markets but nothing suggests a major renewal of syndicated loans will happen in a hurry. Hopefully the IPO window remains open to facilitate exits and the all important return of capital to LPs. Trade buyers are well placed to outbid private equity for larger assets without the benefit of cheap credit. The overall economic backdrop for Australia looks positive for the next few years. Private equity is now well established in Australasia so it should benefit from these positive fundamentals.
This comment first appeared as part of a larger article in the PEI Asia Annual Review 2009, which was published with the December/January issue.