Private equity is alive and well, says Mark McNamara, partner with Baker & McKenzie and a return of the billion dollar deal could very well be just around the corner
As the global credit crisis has brought down the average deal size, some people argue that Australasia has permanently said goodbye to the large leveraged buyouts seen 18 months ago. But Mark McNamara, head of Baker & McKenzie’s Asian private equity practice, rejects the idea that private equity is past its prime. “That would be the completely wrong way of looking at things,” he says. “The big funds still have a lot of capital to spend.”
He even goes as far as to say that the large transactions, deals with a value of A$1bn and more, could very well return at the end of this calendar year. “I have no doubt the larger deals will be back, and probably be back quicker than people think they will be back,” says McNamara. “Whether they will immediately hit the same height [of 18 months ago], I’m more sceptical about, but I think buyouts in that A$1 – 2bn region can feasibly be back in the short to medium term.”
A return of the billion dollar deal is largely dependent on a recovery of the debt markets, but the signs are promising. “It is obviously difficult for us to predict too far in advance,” he says, “[but] the banks are starting to come back into the market and are starting to lend again. There was a point in the market where banks were not entertaining finance at all.”
Indications of a recovery of private equity activity at the higher end of the market can also be found in recently announced deals. Examples include the recent acquisition by Sydney-headquartered Pacific Equity Partners of US registry business American Stock Transfer & Trust for what is believed to be close to US$1bn, and the imminent bid by private equity firms for Orica’s Chemnet business, estimated to be worth A$600m.
Pipeline
Although a recovery of the private equity industry might be just around the corner, activity in the last 18 months has been significantly impacted by the credit crisis. McNamara admits that also his firm has experienced a reduction in the size and a slowdown of the number of private equity transactions. “We had a softer December/January than we would traditionally have had,” he says.
But he is quick to add that activity in the mid-market segment, transactions with a value between A$100-500m, has picked up towards the end of the first quarter of this year. “We’ve been active across a number of deals and we’re expecting it to continue to be active,” he says. “This market is pretty robust at the moment and I think there are some private equity houses with quite large funds that are looking at deals in that space that previously might not have.”
The team at Baker & McKenzie recently concluded the acquisition of Bravura by private equity house Ironbridge, a transaction valued at approximately A$272m. It is the first firm private equity offer, which has received board recommendation, to take a company private since October 2007.
The firm also advised on the sale of Amdel by CHAMP Ventures. Amdel was bought for around A$60 million from Healthscope in a CHAMP Ventures-led MBO in late 2005. Champ has now sold the company to the French laboratory group Bureau Veritas, which is thought to have paid A$400m. These types of deals show that private equity is still very much alive and McNamara says the firm has a good number of deals in the pipeline for the next six to nine months.