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An already red-hot market for private equity players is about to get even hotter with a new $415 million Goldman Sachs JBWere fund on the hunt for acquisitions in New Zealand and Australia.
The Trans Tasman Private Equity Fund - which on a leveraged basis will have up to $2 billion to invest - is the third private equity fund put together by Goldman Sachs JBWere after its Hauraki 1 and 2 funds. It plans to make at least two acquisitions worth more than $100 million by the end of the year.
Capital has been raised from investors on both sides of the Tasman but the fund would have a distinctly New Zealand flavour, said Clark Perkins, managing director of merchant banking at Goldman Sachs JBWere.
Trans Tasman is not a retail fund and had a minimum investment threshold of $1 million. It is comprised of investments by high net worth individuals and a range of institutions - including Goldman Sachs itself.
Despite intense competition for a number of prominent Australasian businesses - such as retailer Coles - there were still plenty of opportunities in the mid-size business category, particularly in New Zealand, Perkins said.
If you looked at the GDP to market capitalisation ratio in New Zealand, it is about one-third the size as the ratio in Australia, he said.
"One of the reasons for that is the enormous proportion of businesses that are still in private hands. That is why New Zealand has been an interesting and attractive place for private equity deals in the last few years."
Targeting mid-sized acquisitions means the Trans Tasman fund will be looking to spend between $100 million and $500 million on each of its deals.
The upper end for that range was actually pretty sizeable by New Zealand standards, Perkins said.
Most of the high profile competition for assets had manifested itself in the $1 billion-plus end of the market, he said.
"That's because the Australian funds that used to have up to $500 million have all raised $1 billion and the big global funds have also come down to the Australian market."
Perkins accepts that there have been some high prices paid by private equity companies in the past few years but doesn't believe that the industry is in danger of entering an investment bubble.
With the amounts of money being raised it was "almost a self-fulfilling prophecy" that prices for acquisitions would rise, he said.
But private equity is still a relatively small part of the M&A market. By share of total Australasian banking fees, for example, it still represented less than 25 per cent of deals.
Private equity was competing in areas where people had not traditionally seen it - such as going up against trade buyers and beating them - so it had attracted a lot of attention, Perkins said.
"There are some sensible reasons why that has happened and obviously some firms have paid pretty big prices."
Basically the private equity market had matured a lot relative to where it was two years ago, Perkins said.
"A maturing market means more normalised returns."
The Trans Tasman fund was already looking at three potential investments, one of which is New Zealand based.
"Typically a fund of this size we'd expect to do eight to 10 deals. We'd like to see two other deals done by Christmas," Perkins said.
The Fund also holds a 25 per cent stake in outdoor equipment retailer Kathmandu - which has been set aside by Goldman to be the seed asset for the fund.
That's private
There is no strict Oxford English Dictionary definition of private equity, says Goldman Sachs JBWere's Clark Perkins.
"It's basically a pool of capital run by a team of entrepreneurial type investors. That means it can appear in a deal in all sorts of shapes and forms. It can appear as a pure player on its own, or it can back an existing management team, it can partner with other private equity, other trade players, or other listed companies."
