PE firms eye larger Australia deals - AVCJ Forum

"If you can access the US market that opens up more opportunities than we have seen in recent years because we can do larger financing and larger deals," Justin Reizes, managing director at KKR Australia, told the AVCJ Australia & New Zealand Forum. "The pipeline is looking better than it has done for several years, with a number of corporate carve-outs coming.

If you get similar leverage levels to the US it opens up public-to-private opportunities as well."

Simon Moore, managing director at The Carlyle Group, added that the retail note market has also become more accessible. The private equity firm recently completed add-on financing for Healthscope, extending its debt from A$150 million ($154 million) to A$300 million, and saw strong demand from banks.

"The book was only open for two-and-a-half days and we had A$500 million in demand," Moore said.

While financing is more readily available than in recent years, the general consensus is that the market is unlikely to return to pre-2008 levels - largely because the local banks that still form an essential part of most debt packages won't allow it.

According to Tony Duthie, managing director at Pacific Equity Partners, deal valuations tend to fall between 6x and 8x EBITDA, supported by financing packages of around 4x, potentially rising to 4.5x if senior debt is topped off with supplementary structures such as retail notes.

"Senior debt of 4x is more than enough to get deals done," he said. "Pricing continues to be relatively high but an all-in cost of 8-9% for the senior is acceptable."

Moore stressed that it is a question of capacity at the bigger end of the market, not pricing being driven up to unsustainable levels. Investors previously found local banks' limited debt capacity and the cost of foreign exchange swaps were obstacles to deal-making; having access to US financing means they can aim higher.

"We now have the scope to do A$2-3 billion enterprise valuation deals, but we are not back in the days of chasing things like Coles," Moore said.

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