Australia PE: Mindful entry

Opening an office is arguably the strongest endorsement a global investor can offer to any given jurisdiction. But that doesn’t mean the motivations are necessarily obvious.

EQT’s launch of a Sydney base this month offers a good opportunity to reflect on this point as well as the significance of rising interest in Australia – not only as a beachhead for global players expanding across Asia, but as a deal market in its own right.

The European investor entered the country in 2014, leading a consortium that acquired I-Med Network Radiology for A$600 million ($400 million). An exit came four years later at a valuation of A$1.3 billion. Since then EQT has made just one investment in Australia, last year’s acquisition of cloud services specialist Nexon Asia Pacific via its Asia PE fund. The infrastructure team is working on a third involving retirement village operator Metlifecare. 

For the moment, EQT has nothing specific to say about the macro ins and outs of Australia as a consumer or enterprise market. The firm is already well serviced in Asia by bases in Hong Kong, Shanghai, and Singapore, where it has heretofore led Australian deals. Likewise, there are no plans for the Sydney team to modify the global approach – such as by writing smaller checks – to tap deeper layers of the market.

Instead, the philosophy behind the move has been squarely placed on a general interest in increased regional exposure and the perception that there is a special alignment between the “Nordic values” underlining EQT’s governance model and the business cultures of Australia and New Zealand. Ken Wong, EQT’s Australasia head, tells AVCJ that this shared vision is the key incentive to setting up shop in what is seen as a relatively small market. 

“Australia is one of the most interesting markets in Asia Pacific for EQT because it resonates with the way EQT does private equity, which is all about future-proofing companies through digitization and sustainability,” Wong says. “Those capabilities are much more highly valued in Australia and New Zealand than they are in other markets, so it’s a more natural place for a long-term growth-orientated approach.”

There are a couple of subtle reveals in these comments. First, and least surprisingly, EQT’s core investment interests of healthcare and technology will address global themes that are being prioritized locally such as the effects of an aging population and ongoing government efforts to bolster fibre connectivity. Second, and more interestingly, global investors may only be able to competitively approach this market by touting intangibles. 

EQT’s Australia entry comes with a palpable sense that competition for deals is intensifying and inflating valuations. Perhaps most noticeably, the likes of Affinity Equity Partners and KKR seem obliged to dip lower into the upper middle market than might normally be comfortable. At the same time, local managers such as Pacific Equity Partners and BGH Capital are adding pressure with war chests that have begun to exceed A$2 billion. 

In this environment, the idea that EQT could carve out a name for itself through soft advantages such as kindred Nordic sensibilities is easy to understand. It also offers food for thought to other relatively uninitiated investors keen to join the Australasian bandwagon. A crowded, expensive marketplace, increasingly dominated by well-resourced heavyweights is no place for newcomers without a locally geared angle, no matter how conceptual. 

“You cannot do value investing here – it’ very much about growth investing,” Wong says. “EQT makes investment decisions regardless of the hold period, which is a key differentiator in established markets where valuations and competition are high. You don’t hear that kind of purpose-driven mission statement with the other global private equity firms operating in Australia-New Zealand, and you don’t see many local funds adopting that model either.” 

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• Topics
• Australasia
• GPs
• Australia
• New Zealand
• EQT Partners