The foreign private-equity big game hunters of Australian assets are increasingly distressed-debt investors with a loan-to-own strategy, such as Oaktree Capital Management LLC, rather than better known rivals Blackstone Group LP or KKR & Co.
Blackstone and KKR have shifted their buyout attention north to Asia, particularly potential deals in Japan and South Korea, while continuing to build their China and India operations.
“There are not the big public-to-private deals for the large American private-equity firms in Australia these firms had hoped there would be,” says a senior investment banker. “The stock market is up and that means the premiums boards want from an acquirer make any transaction too expensive.”
The S&P/ASX 200 Index has gained 25 per cent since January 1, 2012. Buyouts of $750 million or upward get a lot of competition not only from overseas but from local private-equity firms such as Pacific Equity Partners, say bankers and private equity professionals.
Oaktree has been involved in the two most high profile takeovers of Australian assets in the last 18 months: the $3.4 billion takeover of Nine Entertainment Co with Apollo Global Management LLC and the $400 million acquisition of Billabong International Ltd with Centerbridge Partners LP.
In contrast, KKR has not done an Australian buyout deal since its 2006 acquisition of Brambles Industrial Services and Cleanaway. Blackstone's last Antipodean deal was in 2011 when it bought New Zealand’s Antares Restaurant Group, the Burger King franchisee of the country.
In 2014, the paucity of large Australian buyouts may continue. In the year to date the average size of an Australian merger or acquisition has been US$90 million, down from US$106 million in 2012, according to Bloomberg data.
Deal volume and number of M&A transactions have also fallen between 2012 and 2013. Bloomberg says there have been 1,144 M&A deals so far this year worth US$70.37 billion, compared with 1,385 transactions worth US$105.82 billion in 2012.
“The lack of M&A volume has meant there is a cautious attitude from foreign vendors (private equity) towards Australia,” says a co-founder of an Australian private-equity firm. “There is plenty of credit worldwide to do deals so we’re hopeful for a pick up in 2014.”
Most of the staff at Blackstone and KKR’s Australian offices are focused less on buyouts than raising money for their extensive array of investment funds as well as buying distressed assets, particularly real estate.
Blackstone has $2.5 billion worth of real-estate investments in Australia and has bought property-investment company Valad Property Group. KKR and Allegro Funds bought a portfolio of distressed loans from Lloyds Banking Group Plc last year.
“These firms are asset managers,” says the Australian private-equity firm co-founder. “Exactly how these firms approach Australia with people on the ground or flying them in is still a matter of debate.”