20 September 2007

Nothing Ventured - by ACUMEN Sep 2007 Issue

The next phase of the private equity journey in Australia is likely to be of great interest to small, medium and family businesses in Queensland – especially those struggling.
Discussion at last month’s Brisbane gathering of the Australian Private Equity and Venture Capital Association Limited (AVCAL) centred on how similar today’s private equity environment is to that of the United States in the 1990s.
That was when US firms began to move away from a simple mergers and acquisitions model to that of buying and turning around distressed businesses and those in abject crisis.
Why? Well, as Vantage Performance managing director Michael Fingland pointed out, it’s not only a “good thing to do” – there’s more money in it.
“Distressed asset returns are more favourable than private equity.” Mr Fingland said. “Turnarounds in Australia, now, are where it was in the US in the 1990s. I think we are going to see a lot more of this activity.”
Colleagues on the AVCAL discussion panel, Interfinancial head of mergers and acquisitions Sharon Doyle and Home Wilkinson Lowry partner Michael Reynolds, agreed private equity in Australia is changing.
“A lot of private equity investing here has been as a result of good times, low unemployment, low interest rates, etc.” said Mr Reynolds. The general feeling of the AVCAL panel was private equity firms will soon set up separate funds aimed at distressed firms and business that are undervalued, due to poor management.

In the US, major private equity companies have set up specialist teams aimed at specific industry turnaround opportunities. Australian firms could soon do the same.
“We’re seeing increasing use of industry specialists.” said Mr Doyle. “A lot more industry research is being done by industry specialists now, as part of the due diligence process.”
In the final analysis, turnaround specialists want the same as their upstream mergers and acquisitions brethren: to restructure a business so it is worth significantly more and becomes a profitably saleable item.
The difference is that the starting point is discovering appropriately challenged businesses. Mr Fingland, who is setting up his own turnaround fund, highlights that many small and family businesses are now in distress.
He said the noise of success in sectors such as mining and construction is drowning out the difficulties faced in many other sectors. In family businesses, there is an overwhelming problem of succession planning.
“There’s a plethora of them out there.” Mr Fingland said. “The Australian banking system cannot (effectively) fund these businesses.”
But there is light at the end of the tunnel for well managed businesses – even those fallen on hard times.
For some battling away at the SME coal face, all that hard work may yet pay off – from an unexpected financial quarter that is better known for cherry picking big, iconic companies.■

Vantage Performance
Turnaround Management Specialist

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