
Q&A: Wolseley Private Equity's Richard Burrows
While other Australian GPs have moved on to larger transactions, Wolseley Private Equity remains resolutely lower mid-market. Richard Burrows, a director at the firm, explains why
Q: Wolseley is fundraising at a time when many domestic LPs are reducing commitments to private equity. How will this impact your investor base?
A: There remains a strong appetite for the lower mid-markets in Australia and New Zealand - where we focus - from those domestic LPs with active PE programs. Private equity is becoming an increasingly global activity. LPs, both domestically and overseas, are thinking about their PE programs in a global context. We identified this trend back in 2008 when raising our second fund. Over the past five-and-a-half years, we have been focusing on building relationships with international investors and now we've got relatively long and established ties with a large number of groups that we are targeting for the new fund. Our first fund was fully domestic and our second fund included a number of international investors. We expect a larger proportion of the LP base to be from overseas in the next fund.
Q: How do you reach those international investors?
A: It's a mix of our own networks and referrals from other LPs. We have an internal investor relations program and then we attend industry events and build the relationships with potential investors over time. Most of the international investors come from Asia, including Singapore, Japan and Hong Kong, as well as the US and Europe.
Q: How does Wolseley differentiate itself from mid-market funds?
A: We define our target market as the lower end of the mid-market in Australia and New Zealand, which encompasses companies with enterprise values of A$30-120 million ($27-108 million). Globally, transactions with values of up to $1 billion can be described as mid-market, but in an Australian context these are pretty big and typically well advised, competitively auctioned, and there are very few of them in the first place. In the lower end of the mid-market there are a lot more companies and less completion from other PE funds. This enables us to be very selective about what we invest in and to invest on better terms. There are also a broader range of exit options available in the lower mid-market compared to the larger end, where there is greater reliance on IPOs. To date we've completed one IPO exit, two secondary sales, and two sales to trade players. Our last IPO was in 2004.
Q: So has competition eased in the lower mid-market space?
A: Competition hasn't been a major concern for us to date as the majority of our investments have been made on a proprietary basis. We don't expect this to change significantly in the future. The number of participants in the lower mid-tier market has contracted over the past 4-5 years as some have moved on to focus on larger companies while others have exited altogether. In addition, there is increasing deal flow available to those firms that can help solve succession issues faced by the baby boomer owners of small and medium size business. These dynamics are creating an environment where there are actually plenty of proprietary opportunities.
Q: How do you source succession planning opportunities?
A: One of our key focuses and differentiators is our Bankable CEO Program where we work and invest alongside executives that have a deep understanding of an industry sector. Having spent a large proportion of their working life running businesses in a particular industry they get to know their peers and competitors. They will typically be aware of 2-4 companies that are potential acquisition targets, and then it's simply a case of knocking on the door. In addition, we generate opportunities through our internal networks, and through our relationships with advisors, bankers, lawyers and accountants.
Q: What other sources of deal flow do you see?
A: We are working with a number of Bankable CEOs, looking at companies that are currently part of a large corporate that is looking to divest and also companies looking for expansion capital to enable them to grow organically or through acquisition. The Guardian Childcare investment which we made in early 2011 and sold last year is a good example of a corporate carve-out opportunity.
Q: Regarding exits, how is the trade buyer universe evolving for mid-market companies?
A: The appetite for M&A activity is slowly improving. We believe globalization is going to be a key theme driving trade exits for us. A lot of international companies see Australia as an attractive place to invest with firms looking to consolidate a market position here or find a business they can use as a platform to grow in the region. We saw that with the sale of our Nextmedia business to a German publisher, Forum Media Group - it wanted a base in Australia from which it could expand its global reach. A number of our portfolio companies will be attractive targets for offshore buyers.
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