Private Equity in Australia
Industry Report
Private Equity in Australia
Although Private Equity revenue is forecast to decline 3.5% in 2020-2021 due to COVID-19 disruptions, it is projected to grow 2.6% over the years through to 2025-26 to $725.3m.
Private equity firms are responsible for investment management in private companies. They may invest their own capital and/or raise funds from external investors to invest on their behalf. Generally an investment period is 4-5 years, during which they commit resources to maximising the company’s enterprise value, before selling it for a capital gain.
OVERVIEW
Over the years, successful industry players have built their market share based on their reputation to raise larger pools of funds. Market share is based on the size of funds managed by each of its participants. Assets are more indicative of the investment power and size of a fund, and therefore better reflect the size of a private equity firm relative to its competitors.
The industry’s life cycle is in Growth phase. The industry is growing faster than the overall economy, increases in superannuation are flowing through to private equity, boosting funds under management; and sectors such as technology and health (candidates for early-stage investment) are growing.
The pressure for Private Equity firms to achieve profitable returns is critical, even more so in today’s economic environment. In order to be certain they can achieve consistent returns in the fund they must focus on purchasing the investment at the right price and focusing on accelerating value creation initiatives to ensure that they can sell at a significant increase in multiple.
Value Creation in the Private Equity Industry
Private Equity firms must have a clearly defined playbook which contains value creation initiatives to support the investment thesis. This provides an advantage in knowing what to pay and the level of risk. The playbook should be refreshed and prioritised for each investment. An asset’s full potential is realised through a holistic approach that explores optimising operational performance, enhancing strategic capabilities and effective capital management. The efficient use of capital is also a critical component of valuing an asset’s full potential. Capital deployment is an important foundation to support strategic and operational initiatives.
