Alexander McNab

Blue Sky Alternative Investments Limited (Blue Sky) has allocated nearly 70 per cent of the $60 million raised for its Alternatives Access Fund (ASX: BAF) into alternative assets – including private equity and venture capital, water and agriculture, a hedge fund and private real estate. The Listed Investment Company (LIC) is Australia’s only listed diversified alternatives investment vehicle.

Blue Sky’s Chief Investment Officer Alexander McNab said a quarter of the Listed Investment Company (LIC) capital had been deployed to the Blue Sky Water Fund, which invests in water entitlements and returned 15.58 per cent for the financial year ending 30 June 2014[1].

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The value of Australian based private equity deals this financial year has already surpassed the total value of deals completed in FY 2013.

Dr Kar Mei Tang, Head of Research at AVCAL – the Australian Private Equity and Venture Capital Association – speaking at the AVCJ Australia & New Zealand Forum in Sydney today said the market and industry was in a good space and getting better after coming off a number of sombre years following the GFC.

The AVCJ conference is the major Australian based Private Equity conference of the year.

“Last year total fundraising fell by 70%, as corroborated by ABS numbers released several week ago, Dr Tang said.

“The good news is that with 4 months to go in the current years fund raising already above the total FY13. There are a number of noticeable trends emerging.

“Average fund size has grown considerably, from $116million in the period FY04 to FY08 inclusive to $230million in the period FY09 to FY 13 inclusive for Growth Funds.

“Equally noticeable has been the shift in the limited partners demographics, with a substantial increase on inflows from offshore and a corresponding reduction in the sourcing of funds locally over the last five years

“There has been a 62% decline in the amount committed by Australian Limited Partners to domestic General Partnerships over the last five years. The total dollars committed by all other parts of the world also fell over this period, but to a lesser degree.

“The sole exception was for Asian Limited Partners who actually upped their total dollar commitments by 12% in the last 5 years.

“For large buyouts the mix of investors has been relatively unchanged but in the Growth Fund area the shift in demographic has been marked.

Domestics LPs used to make up over 80% of funding but now account for just over one third.

“Despite it having been relatively quiet on the deal front over the last few years we expect to see higher levels of activity and figures to date support this view.

“The deal metrics are stacking up pretty well.  Average entry multiple have gone down to 6.5 x, the lowest it’s been since AVCAL has began collecting data in 2005.

“Average debt multiple have normalised to 4x, down from highs of around 6x seen pre GFC in 2007.

“On the exit side things are looking up too, whilst the number of companies being exited has been fairly steady for the last few years.

“The strength of the IPO market has contributed to the current exit situation, especially following the Virtus float last June. Virtus is still the largest IVF company in the world. The only other known IVF listing is only 1% of the size of Virtus,

“Private Equity has accounted for 43% of all large listings ($100m +) on the SASX since 2010, however trade sales remain the major exit pathway, accounting with more than 45% of all exit transactions by number.

“There is undoubtedly more optimism in the sector these days and AVCAL is engaging closely with the Government to provide the human narrative on how PE adds value. Australia is a mature market in the Asia Pacific region, populated with established profitable and expanding businesses with sound track records.

“From a PE perspective this helps position Australia as a five star investment destination within the region, not a one night stand,” Dr Tang said.

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In a significant deal for the private equity sector, Archer Capital has announced an agreement to sell the Cellarmasters Group to Woolworths Ltd for an enterprise value of $340 million. Cellarmasters is one of the largest direct-to-home wine retailers and providers of contract bottling and wine services with operations in Australia and New Zealand. The deal is expected to complete in May, subject to regulatory approvals.

Jon Schahinger, Managing Director of ING Private Equity Access Limited (ING PEAL) congratulated the Archer Capital team on the deal.

“This is an excellent result in a difficult market environment. Archer has again delivered a strong return – almost 3 times the investment’s cost over its four year holding period and above its recent carrying value,” Mr Schahinger said.

The other, smaller transaction is the sale by NBC Capital of its investment in Troncs Holdings, a Queensland trucking business. While, the business has been affected by the volatile Queensland weather conditions, it has been sold for approximately 1.2 times its original cost.

These two deals add to the previously announced sales of Bledisloe Holdings by Propel Investments and Tegel Poultry by Pacific Equity Partners which should be completed over the next few months.

“It is pleasing to see the continued flow of realisations that will return cash to the company” said Mr Schahinger.

“We are aware of a number of other sale processes underway which could only enhance this great start to the year. The portfolio is in good shape overall and we look forward to announcing further positive news in the months ahead,” he said.

More details on ING Private Equity Access Limited and its investments can be found at www.ingpeal.com.au.

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The Bledisloe Group has built a strong suite of brands across Australia and New Zealand to emerge as New Zealand’s largest provider of funeral services and as one of the top three operators in several key Australian markets. It will be acquired by InvoCare Limited (ASX code: IVC) for A$114 million.

Jon Schahinger, Managing Director of ING Private Equity Access Limited (ING PEAL) commented that the sale was a great example of a classic private equity strategy – “buy and build” in a disaggregated industry.

“Propel Investments identified the funerals sector as one well suited to a buy and build strategy and acquired Bledisloe in December 2005. It subsequently grew the business organically and via acquisitions in both Australia and New Zealand. The acquisition by InvoCare represents another successful investment for Propel and ING PEAL shareholders,” said Mr Schahinger.

The acquisition will be funded through cash and escrowed shares in InvoCare and is expected to be completed by March 2011. The transaction was at a price above its recent carrying value and should result in Propel achieving a 3.3 times return on its investment.

ING PEAL is expecting to receive more than $2.5 million.

In other portfolio news, a venture capital investment of private equity manager CM Capital, Piedmont Pharmaceuticals (www.piedmontpharma.com), has signed a major, long-term deal with Bayer Animal Health for its chewable drug delivery innovations. This will enable CM Capital 4 Fund to make its first return of cash to its investors, including ING PEAL. CM Capital will continue to own 28% of Piedmont which it is holding with expectations of significant upside potential.

More details on ING Private Equity Access Limited and its investments can be found at www.ingpeal.com.au.

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