The postponed Valemus IPO sent chill winds around law firms last month and has some interesting implications for PE firms pondering exit strategies. However, it is not all bad news on the private equity front. TPG Capital and Carlyle's proposed A$2.7bn acquisition of Healthscope promises to be the largest private equity buyout in Australia to date, and there has been a steady level of other PE action, propelled primarily by secondary market activity. Private trade sales have increased in the past four months, with recent examples being Champ’s sale of Study Group to Providence in a $660m deal and Quadrant offloading ATF back to Champ and acquiring Media Monitors in a management buyout.

Minter Ellison partner Callen O’Brien said that companies waiting to exit have had to resort to private auctions in the face of a volatile stock market. “Vendors got excited last year when the IPO window finally opened up again. There was an influx of floats and exits,” O’Brien said. “But before the backlog  accumulated over the previous 18 month slump had time to all clear, a sudden drop in global
confidence shut the window abruptly this March.” With the exception of some small to medium-sized speculative deals in mining, exploration, IT and pharmaceutical companies, the IPO market has been quiet over the past four to five months. Companies seeking to exit via an IPO have often been met
with low and unstable prices. This disappointment, of course, was capped off by the Valemus postponement – which set a discouraging tone for other potential float candidates such as REDgroup, Rebel Sport, and Aston Resources, which would have been watching Valemus carefully. However, Aston has proceeded with its IPO.

Dual track and trade sales

Many companies disappointed with the IPO market have found better offers from private bidders. Clayton Utz partner Niro Ananda says there is an increasing trend to adopt a dual track sale process. Pursuing both platforms simultaneously can entail several strategic advantages, with the most obvious being a higher price, driven by competitive tension between the two processes.

“There is pressure on potential trade buyers to offer an acceptable price, because they know the seller can always opt to list the company,” Ananda said. “The vendor is afforded with greater flexibility in choosing the right exit option.” Trade buyers can often afford attractive tenders. “The buyers are comprised primarily of other private equity funds or corporates. We are also seeing increased participation from overseas corporates, in particular from Asia. Corporate trade buyers often
envisage the acquisition will produce corporate synergies, for example by sharing management functions,” Ananda says. “As a result, they are often prepared to offer a higher price.”

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