KEY POINTS:
Private equity activity in New Zealand is just getting started, despite signs that the global buyout boom has peaked, market commentators say.
Some of the biggest takeover deals this year have featured private equity firms, including the purchase of Telecom's Yellow Pages directory service and Australian company Ironbridge's majority takeover of MediaWorks.
However, leading private equity firms have walked away from some major overseas deals.
Corporate raider Carl Icahn, famed for hostile takeovers of large US corporations such as TWA and RJR Nabisco, has said the global boom has reached its peaked.
Icahn said shareholders knew big players such as Blackstone Group, Kravis, Kohlberg, Roberts (KKR) and Carlyle Group were capable of paying large prices for assets and were now holding out for better deals.
Blackstone and KKR both pulled out of the consortium bidding for Australian retailer Coles Group when the price got too rich.
Carlyle's bid with Sir Anthony O'Reilly's Independent News & Media to take Herald publisher APN private was abandoned after the consortium's offer failed to find support from institutional shareholders.
Goldman Sachs JBWere head of private equity Paul Chrystal said assets in New Zealand were also becoming more expensive.
"We all believe the prices are very very toppy." Therefore it was hard to get good assets without overpaying.
"Not all people paying high prices are overpaying, but if they are, there's always more risk that they will have a difficult time later.
"I don't think there's any serious investors in the private equity market who haven't felt the pressure of prices, are worried by it, and are probably more cautious."
But AMP Capital Investors NZ equities boss Guy Elliffe said the fact that some private equity firms were walking from deals in Australia because of high prices was a positive sign. "It just means everything's buoyant."
Apart from high prices, large overseas private equity firms were also contending with emerging issues about how they financed deals.
"Base interest rates and risk spreads are rising." However Elliffe didn't think that was likely to affect deals in New Zealand.
AMP has been picking increased private equity activity among second and third-tier listed New Zealand companies for some time.
"While we'd seen private equity interest, we hadn't seen transactions on the smaller part of the market," Elliffe said. "That's clearly changed with Tourism Holdings and MediaWorks.
"We've always said that we thought people were looking. Now I think it's pretty clear that they are, and transactions have been, and will be done. I don't think that will really change."
That's a view shared by AMP Capital Investors chief economist and head of investment strategy Shane Oliver.
Australasia's relatively benign environment of low inflation and reasonable growth was likely to remain in place for some time.
"This should ensure that the cost of capital remains low and the return on capital remains high," Oliver said.
Relatively low levels of corporate debt suggested plenty of scope for the increased gearing necessary to effect leveraged buyouts, and the value of such activity globally as a percentage of market capitalisation was still low compared to the last great frenzy in the late 1980s.
"The boom in private equity takeover activity is likely to get bigger and this should be positive for shares overall," Oliver said.
Goldman Sachs JBWere's Chrystal doesn't see any pullback in activity soon.
"I see guys on the plane every damn time I go to Australia or come back. Other teams are doing something here."
Big buys
Private equity firms have snapped up New Zealand assets including:
* MediaWorks: Majority stake sold to Ironbridge Capital for $386 million.
* Yellow Pages Group: Bought from Telecom for $2.24 billion by CCMP Capital Asia and Teachers' Private Capital.
* Independent Liquor: Bought by Pacific Equity Partners and CCMP Capital for $1.26 billion.
* Hirepool: Sold to Next Capital for $172 million.
