Global and domestic activity in Australia is mounting 5 min read
At the start of the year, we predicted 2024 would see an uptick in Australian PE deals. With a number of processes already underway, and more about to hit the market, the first half of the year has laid the groundwork for a strong second half.
So what's keeping PE dealmakers busy? The big focus continues to be on exits as conditions improve and pressure mounts to return capital to investors. Corporate carve-outs are still popular and debt is well and truly back, with private credit now in the spotlight. We’re also seeing more global sponsors honing in on Australia, which will only increase the dry powder looking for a home here.
Cracks in the exit dam
As widely reported, there remains a huge backlog of PE exits globally and within Australia. Aging assets have piled up in recent years as macroeconomic conditions have created an often sub-optimal market for sellers.
The first half of 2024 saw a continuation of the subdued PE activity that was the hallmark of 2023, with exit conditions improving more slowly than hoped. But this has only meant pressure has continued to build, and we're now seeing cracks in the dam.
We expect a flood of exits to start in the second half of 2024, kicking off what we envisage will be a period of elevated exit activity as more than two years' worth of delayed deals come to market. We are aware of a number of portfolio companies quietly being readied for sale in recent months: some have already hit the market, others will follow in August and September as sponsors look for signed deals by year's end.
These exits will continue to primarily take the form of trade sales and yet more secondaries, with sponsors increasingly prepared to buy from their peers. Notwithstanding Guzman y Gomez's early success, we don't expect to see a serious return of PE exits via IPOs or dual-track processes until 2025 (at the earliest).
At the same time, we expect many PE firms continue to hold on to well-performing assets that haven't yet hit maturity until conditions further improve into 2025.
The carve up continues
Beyond secondaries and with take privates remaining hard to execute in this market, PE sponsors continue to look to corporate carve-out opportunities as an avenue to deploy capital.
The PE-led breakup of Perpetual was, as expected, one of the dominant stories of the first half of the year, with KKR successfully seeing off a suite of rival PE bids for the corporate trust and wealth management units of the storied fund manager.
A number of other corporates are continuing to review their own strategies amid ongoing macroeconomic headwinds, with a view to streamlining their portfolios or withdrawing from non-core markets and reallocating or returning capital.
Healius is a case in point, having announced plans to divest its Lumus Imaging business to narrow its focus to its core pathology and clinical trials divisions. Expect a spread of PE and core plus investors to line up for this and other breakup opportunities like it—for both listed and sponsor-backed businesses—in the back half of the year.
The rise of private credit
The first half of 2024 has seen the private credit market edge closer to a tipping point in terms of the amount of capital raised and the number of players in the market. Global funds have increased their presence in the Australian market by growing their domestic private credit teams and, through access to huge global pools of capital, demonstrated their capacity to fund a deal's entire capital structure on their own.
The increase in competition in the Australian private credit market has widened the financing options for PE sponsors, including more flexible and lower-cost unitranche structures, junior and mezzanine capital arrangements and asset-backed financings. PE sponsors have also been able to achieve better financing terms which, in the case of high-quality credits for global sponsors, have begun to approach what they would expect to obtain in the US and European markets.
Featuring a number of take private transactions, deals so far this year include Park Place Technologies' $2.5 billion funding package from Blackstone; KKR's acquisition of Perpetual's Wealth Management and Corporate Trust businesses; and Madison Dearborn Partners' acquisition of APM Human Services.
More are to come, with a number of high-profile exits slated for the second half of 2024. In vogue data centre transactions are ripe for private credit solutions, with the potential for Australia to follow the trend currently being seen in offshore markets where these large ticket transactions are increasingly being financed by way of asset-backed securitisations.
All eyes on Australia
The pivot to Australia isn't limited to private credit. Global buyout giants are similarly continuing to sharpen their focus on the Australian market.
Earlier this month, Advent International announced the opening of its first Australian office. This announcement follows speculation that a number of other players are actively seeking to increase their bench strength through strategic hires of senior Asia-Pacific dealmakers, as CVC Capital Partners, Affinity Equity Partners and others have done in recent times.
Global powerhouses like EQT have also indicated the potential to double the size of their Australian portfolio in the coming years.
With billions of dollars of fresh capital raised in new Asia-Pacific focussed (and domestic) funds ready for deployment, we don't see this trend slowing down any time soon.