This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2015/03/24/business/dealbook/private-equitys-bumpy-path-in-australia.html

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
U.S. Private Equity Firms Find a Chilly Reception in Australia U.S. Private Equity Firms Find a Chilly Reception in Australia
(about 9 hours later)
SYDNEY, Australia — When the financing arm of General Electric agreed last week to sell its consumer lending business in Australia and New Zealand to a consortium of investors that included the private equity firm Kohlberg Kravis Roberts, the firm’s managing partner for Asia trumpeted the news. SYDNEY, Australia — When the financing arm of General Electric agreed last week to sell its consumer lending business in Australia and New Zealand to a consortium of investors that included the private equity firm Kohlberg Kravis Roberts, the firm’s managing partner for Asia trumpeted the news.
“K.K.R. is honored to be an owner of such a world-class franchise,” the partner, Joseph Y. Bae, said in a statement. “We will leverage K.K.R.’s global and regional expertise and platform to create an exciting future for this business.”“K.K.R. is honored to be an owner of such a world-class franchise,” the partner, Joseph Y. Bae, said in a statement. “We will leverage K.K.R.’s global and regional expertise and platform to create an exciting future for this business.”
It was a rare victory lap in Australia for American private equity firms, which have few fans in this country’s boardrooms. Private equity firms are perceived as trying to buy companies on the cheap in an environment where few deals meet their normal investment threshold of at least $1 billion.It was a rare victory lap in Australia for American private equity firms, which have few fans in this country’s boardrooms. Private equity firms are perceived as trying to buy companies on the cheap in an environment where few deals meet their normal investment threshold of at least $1 billion.
“There haven’t been enough large transactions in Australia to satisfy the big American private equity firms, who have struggled to get checks away,” said a senior investment banker based in Sydney who spoke on the condition of anonymity because his firm’s biggest clients were connected to private equity.“There haven’t been enough large transactions in Australia to satisfy the big American private equity firms, who have struggled to get checks away,” said a senior investment banker based in Sydney who spoke on the condition of anonymity because his firm’s biggest clients were connected to private equity.
In Australia, Bain Capital, the Blackstone Group, the Carlyle Group, K.K.R. and TPG Capital have completed 17 leveraged buyout transactions in total since 2004 worth $12.74 billion, according to Dealogic. In all, there have been 337 buyout transactions in Australia worth $45.08 billion in the same period, says Dealogic.In Australia, Bain Capital, the Blackstone Group, the Carlyle Group, K.K.R. and TPG Capital have completed 17 leveraged buyout transactions in total since 2004 worth $12.74 billion, according to Dealogic. In all, there have been 337 buyout transactions in Australia worth $45.08 billion in the same period, says Dealogic.
TPG has closed just three buyout deals in Australia since 2004, including one with Carlyle, according to Dealogic. Carlyle, which set up a Sydney office in 2005, has not closed an Australian buyout since 2010, according to its website. Blackstone opened a Sydney office in 2010; just one of its four Australian transactions has been nonproperty, according to Dealogic. TPG has closed just three buyout deals in Australia since 2004, including one with Carlyle, according to Dealogic; a person close to TPG said it had made four other investments not reflected in the Dealogic data. Carlyle, which set up a Sydney office in 2005, has not closed an Australian buyout since 2010, according to its website. Blackstone opened a Sydney office in 2010; just one of its four Australian transactions has been nonproperty, according to Dealogic.
Over the last year, K.K.R. tried unsuccessfully to buy the wine producer Treasury Wine Estates and the compliance-services business SAI Global. In 2012, Pacific Brands, a maker of clothing and linens, rejected a K.K.R. buyout proposal, as did the software company MYOB in 2011 and the fund manager Perpetual in 2010.Over the last year, K.K.R. tried unsuccessfully to buy the wine producer Treasury Wine Estates and the compliance-services business SAI Global. In 2012, Pacific Brands, a maker of clothing and linens, rejected a K.K.R. buyout proposal, as did the software company MYOB in 2011 and the fund manager Perpetual in 2010.
So it was a great relief to Mr. Bae that his firm was able to team up with Värde Partners, which is based in Minneapolis, and Deutsche Bank to secure GE Capital’s business in a deal valued at $6.3 billion.So it was a great relief to Mr. Bae that his firm was able to team up with Värde Partners, which is based in Minneapolis, and Deutsche Bank to secure GE Capital’s business in a deal valued at $6.3 billion.
The consortium had stiff competition from other private equity firms. In fact, the highest bid came from a consortium of TPG, Blackstone, Liberty Financial, the Ontario Teachers’ Pension Plan and Singapore’s sovereign wealth fund, GIC, according to people briefed on the bids.The consortium had stiff competition from other private equity firms. In fact, the highest bid came from a consortium of TPG, Blackstone, Liberty Financial, the Ontario Teachers’ Pension Plan and Singapore’s sovereign wealth fund, GIC, according to people briefed on the bids.
GE Capital decided to go with the lower bid, mostly because it thought Värde’s experience with a similar British business would make for a smoother transaction, according to people close to the deal.GE Capital decided to go with the lower bid, mostly because it thought Värde’s experience with a similar British business would make for a smoother transaction, according to people close to the deal.
The decision did not sit well with TPG, said a banker who advised on the transaction but spoke on the condition of anonymity.The decision did not sit well with TPG, said a banker who advised on the transaction but spoke on the condition of anonymity.
TPG is regarded as the most aggressive of the American private equity firms in Australia. In late 2006, the firm was part of a consortium that made a headline-grabbing offer for a well-known Australian company, Qantas Airways.TPG is regarded as the most aggressive of the American private equity firms in Australia. In late 2006, the firm was part of a consortium that made a headline-grabbing offer for a well-known Australian company, Qantas Airways.
The board of Qantas supported the $8.6 billion bid, but shareholders rejected it.The board of Qantas supported the $8.6 billion bid, but shareholders rejected it.
TPG has invested $2 billion of equity in Australia since 2004, but the firm is still embroiled in a tax dispute with the Australian Taxation Office over the profits from the sale of its shares in the department store chain Myer in 2009. TPG has invested $2 billion of equity in Australia since 2004, but not without difficulties. The firm was embroiled in a tax dispute with the Australian Taxation Office over the profits from the sale of its shares in the department store chain Myer in 2009. That dispute has been resolved, a person close to the firm said.
TPG declined to comment on its Australian activities. The Australian Taxation Office also declined to comment.TPG declined to comment on its Australian activities. The Australian Taxation Office also declined to comment.
TPG’s experience illustrates the challenges that the American private equity giants face in the country.TPG’s experience illustrates the challenges that the American private equity giants face in the country.
In Australian boardrooms, the firms are perceived as bold in making nonbinding takeover proposals to boards. But when negotiations begin after a period of due diligence, private equity’s ardor for a deal seems to cool, leaving a sour taste in the mouths of boards and chief executives, investment bankers and lawyers said.In Australian boardrooms, the firms are perceived as bold in making nonbinding takeover proposals to boards. But when negotiations begin after a period of due diligence, private equity’s ardor for a deal seems to cool, leaving a sour taste in the mouths of boards and chief executives, investment bankers and lawyers said.
“Nonexecutive directors on Australian boards have a deep suspicion of private equity,” said a partner at a leading corporate law firm in Australia, who spoke on the condition of anonymity for fear of offending his private equity clients. “The perception in many Australian boardrooms is that private equity’s nonbinding takeover proposals are tire-kicking exercises.”“Nonexecutive directors on Australian boards have a deep suspicion of private equity,” said a partner at a leading corporate law firm in Australia, who spoke on the condition of anonymity for fear of offending his private equity clients. “The perception in many Australian boardrooms is that private equity’s nonbinding takeover proposals are tire-kicking exercises.”
Complicating the matter, every twist and turn of negotiations between boards and private equity firms in Australia often end up reported by the media. The ability of Australian journalists to persuade sources to talk about the minutiae of a potential buyout damages the good will and trust between the potential private equity acquirer and its target, investment bankers and lawyers say.Complicating the matter, every twist and turn of negotiations between boards and private equity firms in Australia often end up reported by the media. The ability of Australian journalists to persuade sources to talk about the minutiae of a potential buyout damages the good will and trust between the potential private equity acquirer and its target, investment bankers and lawyers say.
“Australia is the leakiest market I have ever worked in,” said Bruce MacDiarmid, Deutsche Bank’s co-head of investment banking in Australia and New Zealand.“Australia is the leakiest market I have ever worked in,” said Bruce MacDiarmid, Deutsche Bank’s co-head of investment banking in Australia and New Zealand.
In buyouts they have been able to accomplish in Australia, Carlyle and TPG’s returns are thought to have been robust, while K.K.R.’s scorecard is estimated to be mixed.In buyouts they have been able to accomplish in Australia, Carlyle and TPG’s returns are thought to have been robust, while K.K.R.’s scorecard is estimated to be mixed.
From 2006 to 2014, TPG and Carlyle may have more than doubled the equity they invested in the medical care company Healthscope, according to an analysis by a private equity industry firm, which requested anonymity out of concern of damaging relationships in the industry. Carlyle’s buyout of Coates Hire, an equipment rental company, may have produced a similar return.From 2006 to 2014, TPG and Carlyle may have more than doubled the equity they invested in the medical care company Healthscope, according to an analysis by a private equity industry firm, which requested anonymity out of concern of damaging relationships in the industry. Carlyle’s buyout of Coates Hire, an equipment rental company, may have produced a similar return.
Ben Gray, the TPG managing partner in charge of its Australian business, told a private equity conference this year that the firm’s internal rate of return on its Australian investments was 60 percent.Ben Gray, the TPG managing partner in charge of its Australian business, told a private equity conference this year that the firm’s internal rate of return on its Australian investments was 60 percent.
K.K.R. may have doubled its money on its investment in the mining services company Bis Industries, according to the private equity industry firm. But K.K.R. may have lost money on its investment in the Seven West Media Group, an owner of TV and radio stations, newspapers and magazines, according to the same source.K.K.R. may have doubled its money on its investment in the mining services company Bis Industries, according to the private equity industry firm. But K.K.R. may have lost money on its investment in the Seven West Media Group, an owner of TV and radio stations, newspapers and magazines, according to the same source.
K.K.R. declined to comment on its Australian business, as did Blackstone, Carlyle and TPG.K.K.R. declined to comment on its Australian business, as did Blackstone, Carlyle and TPG.
Even though buyout opportunities worth more than $1 billion may be few and far between in Australia, that has not stopped American private equity giants from pushing ahead with other investments there.Even though buyout opportunities worth more than $1 billion may be few and far between in Australia, that has not stopped American private equity giants from pushing ahead with other investments there.
K.K.R. bought a 530,000-square-foot office complex in Melbourne last year with the Abacus Property Group, a publicly traded real estate investment trust. Blackstone has a $2.7 billion property portfolio that it is eager to add to. TPG has been a buyer of distressed Australian debt, acquiring the power company Alinta Energy in 2010 with a group of other investors in a lend-to-own strategy.K.K.R. bought a 530,000-square-foot office complex in Melbourne last year with the Abacus Property Group, a publicly traded real estate investment trust. Blackstone has a $2.7 billion property portfolio that it is eager to add to. TPG has been a buyer of distressed Australian debt, acquiring the power company Alinta Energy in 2010 with a group of other investors in a lend-to-own strategy.
Some who work with the big private equity firms predict they will lower their expectations on dollar amounts, writing $100 million checks for stakes in technology companies and agricultural businesses. K.K.R. owns a sandalwood plantation manager in Australia’s remote northwest region. Bain bought the Australian fast food company Retail Zoo for $172 million last year.Some who work with the big private equity firms predict they will lower their expectations on dollar amounts, writing $100 million checks for stakes in technology companies and agricultural businesses. K.K.R. owns a sandalwood plantation manager in Australia’s remote northwest region. Bain bought the Australian fast food company Retail Zoo for $172 million last year.
Carlyle took a 15 percent stake in the Australian logistics firm Qube and had a 20 percent stake in OzForex, a foreign exchange payments company, before selling its shares in an initial public offering in 2013.Carlyle took a 15 percent stake in the Australian logistics firm Qube and had a 20 percent stake in OzForex, a foreign exchange payments company, before selling its shares in an initial public offering in 2013.
Others working in private equity in Australia predict the United States private equity giants will seek to make investments, either controlling or minority stakes, in the mining sector. K.K.R. and Bain are among the firms focused on such businesses. K.K.R. has hired Tony Schultz, who worked at Halliburton and Duke Energy, to look for oil and gas investments.Others working in private equity in Australia predict the United States private equity giants will seek to make investments, either controlling or minority stakes, in the mining sector. K.K.R. and Bain are among the firms focused on such businesses. K.K.R. has hired Tony Schultz, who worked at Halliburton and Duke Energy, to look for oil and gas investments.
Bain and Australia’s biggest private equity firm, Pacific Equity Partners, sought last year to acquire the mining services company Bradken. But, like other proposed buyouts by private equity, the $730 million deal didn’t close after financing collapsed because of a global commodity price slump.Bain and Australia’s biggest private equity firm, Pacific Equity Partners, sought last year to acquire the mining services company Bradken. But, like other proposed buyouts by private equity, the $730 million deal didn’t close after financing collapsed because of a global commodity price slump.
“If the big U.S. private equity guys want to keep an office in Australia, they will probably have to do smaller deals,” said an Australian lawyer who spoke on the condition of anonymity to protect his private equity relationships.“If the big U.S. private equity guys want to keep an office in Australia, they will probably have to do smaller deals,” said an Australian lawyer who spoke on the condition of anonymity to protect his private equity relationships.