A significant increase in exit activity across the Australian private equity (PE) and venture capital (VC) industry underpinned strong returns for investors in the year ended 30 June 2014, according to the 2014 Australian Private Equity and Venture Capital Association (AVCAL) and EY Yearbook.
The last year featured 12 PE-backed initial public offerings (IPOs), marking the most active year for such exits on record in Australia.
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"This past year has been a very positive one for our industry," said AVCAL’s Chief Executive, Yasser El-Ansary.
"The continuing strong performance of PE-backed companies after they have moved onto the listed market is especially encouraging. It underscores the fact that private equity and venture capital managers are focussed on creating long-term value for the businesses they invest in, which ensures that subsequent shareholders benefit well into the future."
The listing of Veda, which was backed by Pacific Equity Partners, was the best performing new listing on the ASX for FY2014, recording a gain of 58% above its offer price (as at 30 June 2014).
Other notable post-IPO performers included OzForex (divested by The Carlyle Group and Accel Partners, which was up 32%), iSentia (divested by Quadrant Private Equity, which was up 16%), and Burson Auto Parts (divested by Quadrant Private Equity, which was up 16%).
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By GlobalDataPE and VC funds posted an after-fee return of 22% to investors in FY2014, beating the listed market by a considerable margin of almost 5%. Over this period, the industry distributed a record $3.5b back to investors, such as superannuation funds, sovereign wealth funds, and corporate investors.
"FY2014 indicates that we are now seeing a sustainable return to more favourable market conditions," said Bryan Zekulich, EY Oceania Managing Partner for Private Equity.
"There’s no question that the return to more normalised market conditions has enabled PE and VC to shine through and outperform the ASX-listed benchmark, and at the same time be highly competitive when you compare that against global returns."
The latest Yearbook also reported higher PE fundraising levels compared to the previous year, with most of the new money flowing towards larger buyout funds.
"It’s positive to see an increase in fundraising, but there is plenty of scope for policy and regulatory changes to be made which would unlock access to more capital for businesses at all stages of growth," said Mr El-Ansary.
"Private equity and venture capital managers have the ability to catalyse significant new economic activity across a wide spectrum of industry sectors, but to do that there has to be a major boost to the amount of capital committed to the asset class. The allocation of capital into PE and VC funds over recent years has not kept pace with the growth of our compulsory savings pool and the size of our economy," added Mr El-Ansary.
Fundraising data for FY2014 showed that sovereign wealth funds, for the first time, overtook superannuation/pension funds and fund-of-funds as the largest single source of new commitments. Meanwhile, the proportion of commitments flowing from domestic investors continued to decline, now accounting for just 54% (58% in FY2013) of all new commitments to Australian PE and VC.
Total PE and VC investment activity fell to $2.5b, 13% lower compared to the previous year, mostly due to lower levels of new investment activity by domestic PE funds. Fewer PE managers made investments in FY2014 compared to previous years.
However, a greater number of VC managers were actively investing compared to previous years, especially concentrated around early stage businesses within the information and communications technology sector.
Reflecting the strength and quality of Australian businesses within our economy, the data confirms the continued strong interest of foreign PE and VC funds in our market, with inbound investment rising to almost $1.2b, 45% higher than in FY2013. This included the US$250m investment by US-based Insight Venture Partners’ for a stake in Campaign Monitors: the largest ever single VC investment in an Australian technology company.
The 2014 Yearbook was produced by AVCAL in conjunction with its research partner EY. The 2014 edition is the 15th consecutive PE and VC Yearbook produced on behalf of the industry in Australia.
