Private equity takes centre stage

It is difficult to overstate the impact of private equity on the Australian M&A landscape in the past 12 months. Private equity in Australia is not a new phenomenon.What has changed is the scale and nature of the acquisitions undertaken by private equity players. No longer resigned to buying unwanted or unloved arms of businesses, many of our largest listed companies have now become fair game for financial sponsors. For a combination of reasons, including the arrival of the global houses, cheap and readily available debt and stable economic conditions, the volume and value of deals in Australia in the past 12 months has surpassed all that has gone before it.

But the traffic has not all been one way: private equity has had to confront a number of hurdles. Winning over a target board has usually been vital to the success of public to private deals. Potential targets have, in response to the new landscape, turned to new measures, such as the publicly announced bidding protocols of Coles Group released on 26 March. Those protocols seek to regulate the rules of the game including the maximum number of equity consortium members and financiers.

More recently, a number of deals have demonstrated that target shareholders can on occasion be an even more difficult electorate to win over. Witness the defeat of the $1.6 billion Flight Centre scheme and the subsequent joint venture discussions, the close call on the scheme vote for Archer’s acquisition of Rebel Sports, the current position of a significant shareholder in the Qantas takeover proposal and the press reports on shareholder resistance to the APN News & Media deal. Regulatory interest in private equity is also heightened. On 26 March, the Treasurer and Parliamentary Secretary to the Treasurer announced additional funding for the Takeovers Panel (Panel) to ‘improve the regulatory framework of private equity takeovers’.

Days later, the federal government supported a referral to the Senate’s Economics Committee to consider all things private equity. The report of the Committee is due 20 June 2007.

The Reserve Bank’s March 2007 Financial Stability Review devotes a chapter to private equity, concluding as follows:

While the increase in LBO activity in Australia has led to some pockets of increased leverage within the corporate sector, it does not appear to represent a significant near-term risk to either the stability of the financial system, or the economy more broadly.

Finally, and perhaps of more day-to-day relevance, the Panel has weighed into the debate. The Panel’s draft guidance on protocols in private equity bids is the topic of the first article in this month’s edition, followed by a note on the funding of the private equity boom.

This article was written by Tony Damian, Partner.

For more information please contact

Name : Tony Damian
Title : Partner
Office : Sydney
Phone : +61 2 9225 5784
Fax : +61 2 9322 4000
Email : tony.damian@freehills.com