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Australian tycoons are set to expand their empires - with a wad of cash from private equity investors.
Private equity funds, concerned by the steep valuations of Australian assets, have bankrolled business icons such as James Packer and Kerry Stokes to use their in-depth industry knowledge to buy the right assets at the right price.
"From a private equity perspective, a trade buyer can bring industry understanding that can be invaluable," said Jeremy Samuel, managing director at private equity firm Anacacia Capital. "It also creates a logical, albeit sole, exit option for when the private equity firm is looking to sell."
Private equity funds, which buy companies with the aim of turning them around and selling them at a higher price, led a wave of mergers and acquisitions in Australia in 2006, with a record US$171 billion ($247 billion) in announced deals, according to data provider Thomson Financial.
Some of the deals have lined the pockets of Australia's biggest tycoons and made them hungry for more: Packer is now hunting for gaming companies worldwide while Stokes has his eye on media outlets.
Expect more to come. Australia has 10 billionaires, including property, media, retail and mining magnates. With the boom in private equity spending in Australia showing no signs of easing this year, they could all be players in a takeover wave in 2007.
"There are a lot of private companies in Australia, and a lot of them will be thinking, how can I go do what Stokes and Packer did," said Aziz Dean, managing director, fixed income capital markets, at Citigroup CIB in Sydney.
"To take a private company to the next level, an entrepreneur usually went public, but now there's an alternative to an IPO and that's a joint venture with private equity."
Retailing magnate Gerry Harvey will become the latest tycoon to be cashed up if shareholders approve a private equity bid for clothing retailer Rebel Sports Ltd this week.
Harvey, who will reportedly glean about A$195 million ($222 million) from the deal, has not ruled out buying Coles Group Ltd.'s computer and office product business or rival retailer Retravision, which was placed in receivership last year.
DISTINGUISHED COMPANY
Packer, Australia's richest man following the death of his media mogul father Kerry, last year struck a deal to tip the media assets of Publishing and Broadcasting Ltd (PBL), into a new company to be jointly owned by PBL and buyout group CVC Asia Pacific, raising A$4.5 billion ($5.1 billion).
The 39-year-old Packer has about A$3 billion ($3.4 billion) to spend and is eyeing new gaming businesses overseas in Asia, Europe and the United States.
Fellow media mogul Stokes' Seven Network Ltd sealed a similar deal with US buyout firm Kohlberg Kravis Roberts.
Stokes had been expected to make a play for other Australian media assets when new ownership laws take effect later this year, although he said last month he too might look offshore if prices were too high.
"The deal that was structured for PBL has prompted a fair amount of interest in similar transactions from both public and privately owned companies," said Ben Keeble, head of financial sponsors coverage in Australia for investment bank UBS.
"Using private equity as an alternative capital market to fund long-term organic and acquisition led growth can have material advantages over the public markets -- for example, speed, flexibility and investment in longer-term value creation."
Other tycoons did not go down the joint venture path but are sitting on tidy sums after selling out to private equity in order to fund new ambitions or projects.
Jan Cameron, founder of adventure equipment maker Kathmandu Group, became the richest woman in New Zealand last year after selling her company to private equity investors Goldman Sachs JBWere and Quadrant Private Equity.
Cameron is now buying up property in the Australian island state of Tasmania, according to local media reports.
BEAR HUG
For private equity, teaming up with Australian companies can give them an edge in the cut-throat competition to buy assets. It can also provide an easy way to cash out in a couple of years -- by selling their half in the venture to their partner.
"I've been approached by several trade buyers interested in partnering to buy various businesses. Inevitably, when there are a couple of high-profile cases it stimulates interest from other areas," said Anacacia's Samuel.
However, dealing with such savvy and powerful businessmen could have drawbacks. The partners could clash over what constitutes an attractive business opportunity and, even scarier for private equity, when they can sell out.
"All these things boil down to control, and how much control is the private equity buyer willing to forgo to get some of the advantages that working with a strategic buyer may bring," said Nat Childres, a director at Australian private equity firm Champ.
