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Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Private equity cashed up but will it spend?

Published 11 December 2012 04:59, Updated 12 December 2012 05:42

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Private equity cashed up but will it spend?

While investment opportunities for private equity investors this year were somewhat scarce, experts believe more deals could materialise in 2013. Photo: Phil Carrick

Australian private equity and venture funds have $4 billion that will be looking for homes in 2013, predominantly among medium-sized businesses, according to industry participants.

Investment firms including Archer Capital, CHAMP Private Equity and Quadrant Private Equity account for most of the capital raisings over the past two years; the larger Archer and CHAMP funds combined have raised about $3 billion in that time. These funds generally invest in companies with an enterprise value of between $150 million and $750 million.

Most of the money raised by private equity during this period remains “dry powder”, according to Australian Private Equity and Venture Capital Association chief executive Katherine Woodthorpe, meaning those funds are holding cash or liquid assets ready to find new investment opportunities.

In addition to Archer and CHAMP’s larger funds, the Archer Growth fund, the CHAMP Venture fund, and Quadrant’s fund all remain largely uninvested, Woodthorpe notes. Funds in the “growth” category are generally seeking investments in companies with an enterprise value in the $35 million to $300 million range, she notes.

Between these three private equity firms there is about $4 billion destined for buyout opportunities next year and beyond. PEP (Private Equity Partners), Australia’s largest buyout firm that acquired diversified services business Spotless earlier this year, is believed to be about to start raising for its new fund early next year.

While investment opportunities for private equity investors this year were somewhat scarce, next year the potential for more deals may materialise, Ernst & Young’s Oceania private equity leader, Bryan Zekulich, says.

“This year, PE looked at all the deals, and frankly there weren’t a lot of around… I am seeing a positive intensity to put money to work in this market which could translate to more deals next year,” Zekulich says.

Zekulich points to the likelihood that companies looking to drive growth within their core businesses may spin off non-core assets, which he describes as the “perfect situation” for private equity investors to get involved. Woolworth’s sale of electronics chain Dick Smith in September to Anchorage Capital Partners is an example of such a deal.

Woodthorpe believes business owners among the baby-boomer set will be an active area of investment among private equity investors. She believes – as the next generation becomes more reluctant to take on the family business – ageing business owners will look to private equity to monetise their business assets.

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