Exit timing, operations key to high-value Australia deals - AVCJ Forum

"You always have to have one eye on the door and be very quick to move," Simon Moore, managing director at The Carlyle Group, told the AVCJ Australia & New Zealand Forum in Sydney. He noted that Carlyle had learned this lesson the hard way by narrowly missing the window for an exit from Coates Hire.

The private equity firm and National Hire Group - now owned by Seven Group Holdings - bought the Australian equipment-leasing business in 2007 in a A$2.2 billion (then $1.9 billion) deal. After plans for an IPO were abandoned they appointed investment banks to assess sale options in late 2012 but subsequently decided to hold on to the asset and refinanced the debt.

Moore added that in two of Carlyle's other Australia investments, Healthscope and Qube Logistics, there was a clear idea of what needed to be done to the companies and strong management teams were put in place to execute these plans. Referring to Qube - in which Carlyle bought a 15% stake in 2011, he said: "The sector is quite expensive but they have been able to operate in a manner that has created opportunities as they have gone along."

Ben Gray, managing partner at TPG Capital, also stressed the importance of appointing the right management. He observed that "everyone said we were stark raving mad" when TPG acquired retailer Myer for around $1 billion in 2006, but the firm ended up with a 6x money multiple because the business was well run.

At the same time, Gray said it is up to private equity firms to secure competitive valuations and maximizing their returns by simply picking the right moments to invest. TPG waited about four years after Myer before making its next investment in Australia - the $1.9 billion acquisition of Alinta Energy in partnership with Oaktree Capital - and then held off again until the $900 million purchase of Inghams Enterprises in 2013.

There are also investments that are in part underpinned by a belief in a company's ability to maintain robust growth regardless of broader market fluctuations. Leigh Oliver, a director at KKR, described it as "solution investing" - targeting businesses that address a certain societal need, such as waste management, water quality or food security.

He cited KKR's recent commitment to Sundrop Farms Holdings, an Australian agribusiness specialist that has developed technology for growing crops in arid climates. The investment is relatively modest by the KKR's traditional standards in Australia - it has put in at least $100 million - but it is an example of how the firm is trying to be more flexible and creative in its transactions.

"We will always chase some of these larger deals but differentiate our risk-return profile by going into smaller deals and utilizing other forms of capital, such as mezzanine or structured financing," Oliver said.

The AVCJ Australia & New Zealand Forum continues runs March 5-6. For more information, go to www.avcjausnz.com.

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