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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