VIDEO: David Grayce of Pacific Equity Partners

"A schism had developed between the shareholders - what they wanted to happen to the company and their need for capital - and where management and the board were taking it," says David Grayce, managing director at Pacific Equity Partners (PEP), referring to take-privates involving Spotless and Energy Developments. "In those circumstances where shareholders are looking for a solution private equity can be a good solution."

He believes Australia has seen a number of these situations because corporate performance hasn't been spectacular while companies in certain industries have become heavily over-equitized on the back of deeply discounted rights issues and management teams have failed to make good on their promises to shareholders.

Corporate carve-outs are another source of deal flow for Australian buyout funds and in the last 12 months PEP has completed deals for Peter's Ice Cream and tissue and toilet paper business SCA - the former was a full carve-out from Nestle, the latter saw SCA's Australian assets spun off into a joint venture between PEP and the company's European parent.

"Often releasing the potential in a company by allowing it to be free also releases a lot of value," Grayce explains. "On the other hand, there is a lot of risk - often management isn't well equipped to do that and you almost always need to invest additional cost into businesses. They are difficult transactions but if you can get through the transaction and the costs that have to happen, there is a great value creation opportunity."

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• Pacific Equity Partners
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