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Published 30 August 2012 04:19, Updated 31 August 2012 05:20
Private companies have never been as attractive to prospective investors and BRW’s Top 500 Private Companies 2012 demonstrates why.
Poor performing equities markets are encouraging buyers to look at big private companies, many of which are outperforming listed competitors.
A high level of productivity in top private companies is contributing to their appeal. For the third year in a row, the ratio of sales revenue to employees for the Top 500 has been about $550,000. This represents an historically high level of productivity; it was as low as $330,000 in 1996.
Some long-term members of the Top 500 are capitalising on the increased interest in private companies from large public companies and private equity firms.
Bob Ingham, at 81, is the sole shareholder of Australia’s largest poultry producer, Inghams Enterprises, which is ranked 13 on the Top 500. In July, he put his business up for sale. It may be good timing; revenue rose 14.1 per cent to $2.1 billion in the year to June 30, 2012. Inghams is expected to sell for about $1.5 billion.
Although attractive to foreign and local buyers for their market-beating potential, the Top 500 are not immune to broad economic trends.
Total revenue of this year’s Top 500 is 1.7 per cent less than last year, at $217.6 billion.
For the year to June 30, 2012, the S&P/ASX 200 Index fell by 10.8 per cent.
A total of 21 companies depart the list after being acquired by a rival. Fifteen left for the same reason last year.
Earlier this month publicly listed clothing retailer Country Road announced plans to buy Witchery in a $172 million deal. Witchery ranks 212th on this year’s list with $271 million in revenue. If the deal goes through, Witchery will depart the list next year.
Superannuation companies dominate the top spots. Industry giant AustralianSuper retains its title as the biggest private company even though its revenue fell 24.7 per cent to $7.4 billion.
First State Super Fund assumes second position. (Last year UniSuper was second but it moves to fourth after a 31.7 per cent fall in revenue.) First State Super’s growth is largely due to the acquisition of Health Super in June 2011.
Packaging manufacturer Visy Industries was third with $3.9 billion in revenue, up 2.6 per cent.
The flat equities market hurt many companies on the list, especially the super funds. They have a big impact on the overall performance of the Top 500 and account for about one quarter of total revenue.
Collectively, insurance and superannuation companies had a 26.7 per cent fall in sales. The revenue of service providers to the finance and insurance sectors fell 13.6 per cent.
Retail companies struggled but some technology-related retailers did well. Online shopping company Catch of the Day , which debuted last year, lifted revenue by 62.0 per cent to $230 million.
Growth in carbon management and trading has helped the young team behind COzero record strong growth. COZero also debuted last year and increased revenue by 20.4 per cent to $200 million this year.
Software developer Atlassian enters the list this year in 463rd position with $100 million in revenue. Atlassian’s founders, Mike Cannon-Brookes and Scott Farquhar, were fourth and fifth on last year’s BRW Young Rich list with a combined net wealth of $360 million.
The good news for many private companies is that you don’t have to be in a new industry to achieve strong growth.
Impressive results were achieved in the health and community services sector, which recorded a 13.6 per cent increase. Demographic trends are helping to lift demand for health services. Mater Health Services rose to 58th from 71st and St John of God Health Care was up to 47th from 53rd on the back of revenue rises of about 9 per cent.
Globalisation in the legal profession is having an impact on the law firms that appear in the Top 500. Allens Arthur Robinson has rebranded itself as Allens and formed an Asian alliance with the big London-based firm Linklaters. Allens lifted revenue by 5 per cent to $466.2 million. Freehills recorded a 10.6 per cent rise in revenue to $565 million and will merge with UK firm Herbert Smith in October.
King & Wood Mallesons was formed when Mallesons Stephen Jaques merged with Chinese law firm King & Wood in March this year. Its revenue fell 3.9 per cent in the year to June 30 2012 to $242 million.
Several members of the Top 500 have well-established overseas divisions. Melbourne-based Ego Pharmaceuticals began exporting its skin care products to the Middle East as early as 18 years ago. Ego’s revenue rose to $99.8 million last year, up 32.5 per cent.
Top 500 stalwart Visy is believed to get more than half of its $3.9 billion revenue from its US paper and packaging business, Pratt Industries.
Mining was the sector that performed the best. The small number of miners on the list (there are only three and this distorts the result) lifted revenue by 63.8 per cent.
Gina Rinehart’s Hancock Prospecting is 23rd with $1.4 billion in revenue but a lack of new information has meant that Hancock Prospecting is judged on its 2010 numbers.
High oil prices helped fuel companies post impressive results. Refuelling Solutions Group was up 88.5 per cent to $256.8 million; Liberty Oil rose 18.8 per cent to $828.82 million; and Pacific Petroleum was up 10.3 per cent to $133.5 million.
Some manufacturers did well despite the widely held belief that the sector is struggling. Machinery and equipment manufacturing grew 16.2 per cent.
Industrial infrastructure manufacturer Tenix lifted revenue by 28.6 per cent and the grinder manufacturer ANCA had a 25.4 per cent increase in sales.
Construction, the second-largest sector on the list after property and business services, had mixed results.
Much depended on each company’s specialisation and project. Residential builders generally did worse than commercial builders.
Piacentini & Son was up 77.1 per cent, and Vaughan Constructions grew 62.8 per cent, helped by projects in Victoria and Western Australia.
Climate control specialists AE Smith had the biggest sales increase of all companies on this year’s list (in percentage terms). Its revenue rose by 124.4 per cent to $230 million.
The private food retailing sector lost KFC franchisee Collins Food to the ASX during the year. Convenience chain 7-Eleven, which has about 500 stores in Australia, increased revenue by 15.7 per cent to $3.3 billion.
Former top place getter on BRW’s Fast 100 and Fast Franchises lists, home delivery food company Aussie Farmers Direct, increased revenue by 14.8 per cent more to $152.2 million – its best result ever. Online sales helped Crust Gourmet Pizza Bars record a 35.6 per cent increase in revenue to $135.7 million.
The high Australian dollar helped some Top 500 companies but hurt others. Wool exporter Techwool Trading’s revenue shrank 14.7 per cent while De Bortoli Wines’ latest full-year result was down by 9.9 per cent. As a group, food, beverage and tobacco manufacturers increased revenue by 5.7 per cent.
PRIVATE BUSINESS TABLES
Asher Tan is senior economic research analyst at IBISWorld. For rankings of the BRW Top 500 Private Companies by their industry sector and head office location, go to brw.com.au for web-exclusive tables.