Archer’s activity masks poor PE sentiment

Archer's A$450 million ($474 million) purchase of Quick Service Restaurant Holdings (QSRH) - the company behind local fast-food chains Red Rooster, Oporto and Chicken Treat - from Quadrant Private Equity a fortnight ago took its spending past $1 billion in six weeks. Other majority stake investments include Healthe Care, Australia's third-largest hospital group, and racing league outfit V8 Supercars.

The private equity firm is said to be planning to raise a new $1.27 billion fund before the end of the year and Andrew Thompson, head of private equity at KPMG Australia, notes that it helps to remind potential LPs of your ability to put capital to work. But he is not bullish about the prospects for the private equity in Australia this year.

"The major issue out there is a bit of a standoff on valuation between companies and private equity. This is important in terms of stimulating new transaction activity," he says. "Many of these companies want to list but it's not really an option as the capital markets are difficult."

While Archer's investments appear to have targeted the consumer sector, industry participants warn against reading too much into it. For example, fast food is seen as a defensive play for tougher economic times and health care is a lucrative sector with strong commercial potential and high barriers to entry.

More mainstream consumer plays are conspicuous by their absence in a market still shaken by Pacific Equity Partners' (PEP) experiences with REDGroup Retail, owner of bookstore chains Borders and Angus & Robertson. REDGroup collapsed in February and remains in the hands of the administrators.

"I would be surprised if we see many private equity firms going into specialty retail right now," says Simon Pillar, managing director of PEP.

The private equity firm is on the lookout for deals but Pillar is not optimistic about the consumer sector, given factors such as high interest rates, low sentiment and talk of tighter monetary policy.

"We have a two-speed economy and if you are investing in sectors outside of mining and mining services the environment is at best uncertain," he says.

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• Topics
• Australasia
• Archer Capital