Major trades across the technology, media and telecommunications sectors have driven a boom in private equity in Australia as institutional investors turned the corner on pandemic-induced market shock thanks to the digital transformation of the global market.
According to new analysis from Australian consulting firm BDO, private equity returns in Australia exceeded the return of the ASX 200 by 111 basis points through fiscal year 2021, mainly driven by an increase in superfunded exposure and a newfound appetite for debt. .
Market activity throughout the year was best reflected in the global industry’s shrinking pool of “dry powder” – funds set aside by a company for more rainy, more volatile periods – which fell from last year’s historic high of $ 11.8 billion to $ 11.5 billion. .
Sebastian Stevens, national private equity manager at BDO, said the widespread availability of cheap debt has led large firms to simply channel their competitors to buy growth, forcing private equity firms to become more competitive.
“It’s a competitive landscape that now looks really attractive to a vendor as private equity matches valuations for companies from trade buyers,” Stevens said.
“Private equity still has a huge amount of dry powder, but there is a lot of competition out there with the cashed companies who also want to buy,” he said.
And it was Australian technology and telecommunications companies that piqued their interest through the pandemic, as any business interested in remaining solvent while consumers were trapped at home had to adopt rapid digitization strategies.
“Technology, media and telecommunications have always been number one, in which private equity invests, and it has become more pronounced under COVID-19,” Stevens said.
“While other sectors of the economy stalled at the beginning of the pandemic, technology companies continued to push forward, highlighting their attractiveness to private equity and cementing their position at the top,” he said.
Over the past year, Australian superfunds have also seen the trend, in an attempt to diversify the world’s largest pension asset pool worth around $ 3.1 trillion.
Last December, the Australian Super – the country’s largest pension fund – said it was considering building a private equity team as it moved to bring more investment internally to build on its returns.
Investment appetite among Australian superfunds also continued well into September this year, pushing the total value of merger and acquisition agreements in Australia to a record high of close to $ 145 billion, according to Bloomberg data.
Two of the five largest private equity agreements only underscored the growing demand for communications infrastructure in Australia as the market shifted online.
Among them was the acquisition of specialized fiber and network solution provider, Vocus Group, which entered into an agreement to implement the plan with a consortium called Voyage Australia, which brings together Macquarie Infrastructure, Real Assets and Aware Super for a deal worth close to $ 5 million .
The second was an agreement involving BAI Communications, a global infrastructure provider that attracted $ 2.6 million in growth capital from the CPP Investment Board and Alberta Investment Management Corporation, giving the company some rocket fuel for global expansion.
While private equity has long outperformed the majority of asset classes in Australasia, returns rose well and truly as it exits the March quarter of 2020 and into the 2021 fiscal year.
Since the March quarter of 2016, private equity returns have surpassed ASX by at least 75 basis points, yielding up to 106% compared to the average of 30% among ASX 200.
About the author
John Buckley is a Senior Reporter at Business Insider Australia.
He has, among other things, bylines in The Washington Post, The Sydney Morning Herald, The Age, The Saturday Paper and VICE. His reporting covers politics, finance, economics, technology and the way each of them intersects with culture.
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