Continued growth in the private equity market in Australia is prompting firms such as Clayton Utz to ramp up their investment in the area, with recent deals suggesting it's on a long-term upward trend.
Clayton Utz's managing partner corporate, Wally McDonald, says the firm's lateral hire of Minter Ellison's head of private equity, Phil Kapp, and a team was a strategic move to boost the firm's capability in the area as private equity in Australia starts to mirror overseas growth trends.
And while Kapp's former employer, Minter Ellison managing partner Phil Clark, has said he does not see private equity as a long-term earner for the firm, Clayton Utz will be hoping otherwise. What might be a great area today might'nt be a great area tomorrow. Private equity is not like that, McDonald says. It is clearly something which has had a long track record in the US and the UK. In the UK, by value and by volume, private equity's exceeding M&A - thta's a trend that has emerged over the last seven or eight years.
McDonald says private equity also fits well with the firm's M&A practice. We see private equity in some ways becoming almost as large as M&A has been, McDonald says. It's all part of repackaging these older, mature businesses into something new.
Kapp has hit the ground running at Clayton Utz, leading the recently led the legal team which advised Pacific Equity Partners on the A$115m leveraged buy-out of WH Smith's Aspac businesses.
His old alumni, however, is still getting a piece of the private equity action. Minters recently represented a Quadrant Capital and Colonial First State Private Equity Limited joint venture in its A$110m secondary LBO of Adelaide-based Penrice Soda Products from private equity funds manager Castle Harlan Australian Mezzanine Partners (CHAMP).
Coudert Brothers represented CHAMP on the deal, which Sydney partner Mark Williamson says marks an important development in management buyouts in Australia. As the capital available to private equity in Australia has grown significantly in recent years, it will become increasingly common for private equity funds to buy assets from other private equity owners, Williamson says.
There certainly appears to be a lot of capital sloshing around. The Australian Venture Capital Guide 2004 lists 189 sources - 32 of which are new - of private equity and related financing for growth companies, with a combined $5bn available to invest in venture capital. Kapp claims the amount of capital currently available is closer to the $10bn mark. If youre not tapped into that, youre cutting yourself off from a very large part of the market, Kapp says.
Kapp says the value of private equity investments has made a quantum leap in the last 10 years, from figures around the $10m mark to upwards of $800m. The sources available have also expanded, with many global and superannuation funds jumping on the private equity bandwagon in search of higher returns through more flexible vehicles.
Sydney and Melbourne are the main sources of private equity work, but Brisbane is also increasingly a generator with funds such as ANZ Private Equity, Hastings Funds Management, GE Private Equity and Queensland Investment Corporation all making major investments in the last few years.
Simone Desmarchelier, who recently joined McCullough Robertson in Brisbane as a special counsel with a strong private equity background, says Queensland is proving attractive to a number of inter-state investors, particularly in the private equity sphere. I have noticed a significant increase in interest in Queensland businesses by major private equity fund managers in the last year, Desmarchelier says.
Small to mid-cap companies are coming to the attention of the market and Queensland is viewed as a good feeding ground. But there is still much work to be done to convince more funds to operate out of Brisbane.