Tuesday, March 4, 2014
Private Equity Markets in Australia Overview
Private Equity markets in Australia include both private equity funds, venture capital funds and other capital providers including both equity and debt financing.
The private equity market in Australia is relatively small, but nevertheless a growing market especially during the 2000-2007 era.
In the recent 5 years, a significant increase of new Asian based private equity funds operating or setting up their representative office in Australia. The leading Asian private equity funds are typically from Japan or Singapore at this stage, but other State-owned, especially Chinese owned private equity firms have been increasing their activities in Australia especially in the mining and resources sectors.
The majority of private equity firms based in Australia are interested in the traditional businesses or IT related businesses - which are mainly taken up by venture capital funds.
Private Equity firms in Australia have been largely responsible to take over established businesses including retail and manufacturing industries, a lot of deals were debt funded with very high gearing ratios, which is now causing concerns to some of the acquired companies.In 2008, there was a starting of consolidation amongst private equity firms in Australia. Some were led by wealthy Australian families, some were acquired by corporate advisory firms or investment firms from overseas as a way to diversify their interests geographically.
In the medium term, further consolidations to occur in Australia, both the medium and large sized private equity firms. We are already seeing increasing number of European and US private equity firms selling stakes to Asian based private equity funds including many State owned sovereign funds, the similar trend is also likely to occur in Australia.
Australian private equity funds tend to operate differently than other private equity funds in the world - because of the nature of the business and heavy emphasis on mining and resources.
However, this is set to change because of the rapid deterioration of mining sectors in Australia.The Australian investment market is certainly changing, and is now forming very close ties with Asia. The newly elected labour Government in particular has announced strong ties with China, and has opened for direct investments allowing Chinese nationals to invest directly in Australia - previously this was usually done through a representative or delegate in Australia.
Although the real impact is too early to predict, there has been increasing number of direct investments from Chinese financial institutions such as CITIC lately, and the recent strong investments in Australias Rio Tinto is another good example how Chinese or Chinese Government sponsored private equity firms have now taking strong interest in Australian assets.
