VIDEO: Pacific Equity Partners' Anthony Kerwick
The challenge facing private equity investors globally is twofold, says Anthony Kerwick, managing director at Australian GP Pacific Equity Partners. First, the operating environment today is very different from that of five years ago, which means the economic rationale for certain deals might have changed dramatically. Second, in the absence of large amounts of cheap debt, operational improvement is the only consistent driver of returns
While these issues apply to Australia as much as anywhere else, Kerwick is optimistic about the country's investment environment. "The economy is strong, government debt is low, and unemployment is low. It is possible to find non-distressed situations out there where the outlook is relatively positive," he tells AVCJ TV.
He adds that Australia's GP community is reasonably stable, so there is less uncertainty about who the fund managers are and where the capital is coming from. "We haven't got the situation you see in other parts of the world where you have too many fund managers, with too much capital, chasing too few deals, driving prices back up," he says.
The trend of exiting assets to Asian strategic investors - as illustrated by PEP and Unitas Capital selling Independent Liquor to Japan's Asahi last year - is well established and is here to stay. Kerwick estimates that about half of PEP's investments have been predicated on generating growth by expanding businesses outside of Australia, which makes them more attractive to strategic investors.
"A strong Australian consumer products business that has a strong manufacturing base, a strong new product development capability and a strong consumer franchise is a valuable proposition for a strategic buyer," he says. "They can take those assets and expand them through distribution channels in a highly synergistic way, especially in rapidly growing markets like Asia."
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