Fund focus: The need for speed

The gaps between Quadrant Private Equity’s fundraises are narrowing. Just over three years elapsed between the final closes on the GP’s sixth and seventh Australia and New Zealand mid-market buyout vehicles. This fell to 30 months in the next cycle and then approximately 16 months as the firm closed Fund IX – its sixth as a fully independent entity – at A$1.15 billion ($863 million) in December.

“We tend to do seven transactions per fund and we’ve done the seven, so we were out of money. We need a new fund to continue to invest,” says Justin Ryan, a managing partner with Quadrant. As to why the velocity of deployment is increasing, Ryan puts it down to track record: founder succession deals are a cornerstone of the GP’s strategy and it is easier to win over business owners with partnership and expansion plans when you can point to a string of successful case studies.

Furthermore, those seven transactions tend to be umbrellas for multiple acquisitions. For example, within four months of closing Fund VIII, Quadrant had invested 40% of the corpus across 10 deals, six of which fell under two newly-created platforms. Fitness & Lifestyle Group represents an attempt to consolidate Australia’s fragmented gym operator space, while Experience Australia is a collection of experiential tourism assets that have been placed under a single platform to facilitate cross-selling.

Most recently, Quadrant has entered the family and children’s entertainment market, acquiring Timezone Group as the first asset of The Entertainment & Education Group. “We’ve always been attracted to strong brands. We have a long track record of IPO exits and having a strong consumer brand is a plus when taking a business to market,” Ryan explains. “Consumer businesses have also been attractive in recent years because interest rates have been falling and people have been spending.”

In addition, he views these investments through the lens of technological disruption. Gyms, amusement arcades, and restaurants – Quadrant owns Rockpool Dining Group – have become much more popular shopping mall tenants as traditional retailers struggle due to the rise of e-commerce.  

Timezone reflects the increasingly international flavor of the GP’s portfolio as well, with a footprint that stretches beyond Australia into India and Southeast Asia. This is seen as an inevitable consequence of targeting incrementally larger investments where growth is partly predicated on scale. It is also a hit with trade buyers. In the past six months, Icon Group and Real Pet Food were both sold to consortiums keen on exploiting an Asian growth angle that Quadrant had to a certain extent mapped out.

The private equity firm typically lines up deals ahead of fund close, but this rapid deployment approach only works with rapid fundraising processes. Quadrant took six months to raise Fund VI because it was the first to include offshore LPs. Each vehicle since then has closed in 4-6 weeks, with demand far outstripping supply. The foreign-domestic LP split in Fund IX is 50-50 with almost all the capital coming from existing investors.

Being substantially oversubscribed translates into upward pressure on fund size that Quadrant has so far largely managed to resist: Funds VI, VII and VIII closed at A$750 million, A$850 million, and A$980 million, respectively. Nevertheless, the GP is wary of becoming too big too fast.

“We have to move incrementally and make sure we have the right skills for our place in the market,” Ryan adds. “We don’t feel uncomfortable with the amount of equity we’ve raised, but we have to be careful. Others have quickly graduated to larger funds and run into trouble because they got themselves into a part of the market that was more highly contested or where it was just harder to find deals.”

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• Topics
• Australasia
• Buyout
• Fundraising
• GPs
• Australia
• Quadrant Private Equity