Asia Cash Moves Down Under

Private equity houses are planning to invest an estimated £25bn in Asia, but some have found it difficult to do major transactions in China and India. Both countries have proven resistant to advances from buyout funds, largely restricting their involvment to minority stakes in unimportant companies.

As they look further afield for better deals, Australia quickly appears on the horizon. So far this year, Australia has accounted for 61% of private equity deals in the Asia Pacific region, compared with 39% last year.

Dealmakers like the rule of law in the country, which is similar to that in the UK or US and the government is receptive to private equity takeovers. This positive attitude was highlighted by Canberra’s endorsement of the Quantas buyout. It is difficult to find another country in the region or in Europe for that matter that would allow the national airline to be taken private without much fuss. In the end, the consortium made up of Macquarie Bank, Texas Pacific, Allco Finance Group and Onex Corp failed to gain shareholder approval for it’s A$11.1bn bid. In February, Coles, the Australian retailer decided to turn an A$18.2bn bid from KKR into a full blown auction which is expected to top A$20bn resulting in the country’s largest buyout ever.

Australia’s compulsory pension scheme has changed the landscape of domestic investing creating an A$1trn fund industry. A survey by Thomson Financial, the publisher of the PEHub, shows that the Australian private equity industry is expanding at an increasing rate. The cumulative amount invested since 1999 is A$14bn and the average fund has grown in size by 27% per year between 1999 and 2006, reaching A$415m. The total number of companies with private equity investors is approaching 900 including those based in New Zealand.

Australia’s most famous private equity house, Pacific Equity Partners raised a record breaking A$1.25bn fund which closed three times oversubscribed. The group expects to launch another fund soon which could reach up to A$4bn. Another Australian player, Quadrant, raised an A$500m fund and is investing A$180m in an MBO of Australian Fast Food.

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