Asian Venture Capital Journal | 08 Sep 2010 | 16:28
Mezzanine’s role in Australia’s financing sector has grown in light of the economic crisis because, not only has it acted as an alternative to taking on senior debt – as banks became more stringent in their lending – but also to equity itself, says Gary Stead, Co-Founder and Managing Director of Shearwater Capital.
Stead tells AVCJ that Australia's shifting financing landscape has landed mezzanine with new bedfellows that it wouldn't have had to compete with in times past. "The alternative used to be senior debt. So the private equity funds would say, ‘do we really need to do mezzanine? Not really, because the banks will go an extra turn. They'll go to 6x; we'll push them to 6 1/2x. We don't really need this expensive mezzanine,'" Stead says. "The banks of today say, ‘we're at 3x; we're at 3 1/2x, take it or leave it,' and the private equity fund is then talking about writing an equity check for 40-45%. Then our capital becomes an alternative to equity, not to senior debt, and as an alternative to equity, I think we're good. We're cheaper."
Stead additionally looks at the challenges private equity players face in Australia, and the avenues they still have available to them in terms of borrowing capital.
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The Australasian alternative assets industry is evolving and this is creating a new set of challenges for participants. Funds seeking new commitments typically require the lion share to be from offshore, the deal environment is competitive and in general market activity has slowed reflecting the regions overall macro-economic story. However, a handful of funds have had successful fundraises and it is clear that the GPs that measure up when benchmarked on a global stage will continue to drive the domestic industry forward.
This is an intriguing time as Australasian PE matures. Succession planning strategies, sourcing offshore commitments, creating a team that can deliver real operational value, customising the PE model and finding attractive investment and exit opportunities in a slow market are all key topics for debate.
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