Private equity makes up for lost time: findings from BDO’s snapshot review of private equity activity

01 December 2021

Technology, media and telecommunications deals (TMT) led a monumental rebound in private equity activity in Australia over the past year, with private equity returns outperforming the ASX 200 by 111 basis points.

The results come from the latest analysis by accounting and professional services firm, BDO in Australia, in its snapshot review of private equity activity over the last 12 months to 30 June 2021.

Deal activity following the COVID-19 pandemic is remarkably reminiscent of the post-Global Financial Crisis period, with private equity funds harnessing the macroeconomic environment supported by record low interest rates, recording 134 deals in FY21, up from 124 deals in the year before.

Dry powder sits at USD $11.5bn as at 30 June 2021, down slightly from a historic high of USD $11.8bn at December 2020. BDO expects to see increased activity in capital deployment over the next year, as investment houses look to deploy their dry powder or risk suppressing growth and limiting the value of investments over time.

Sectors such as TMT, Business Services, and Consumer were the hottest sectors in FY21 in terms of deal volume.

TMT was supercharged by the pandemic, as technology has become embedded into the lives of consumers and business operations. The sector saw 33 deals contributing a total disclosed value of USD $7.5bn. Business services recorded 28 deals, while Consumer saw 27 deals.

Two of the top five private equity deals highlighted the ongoing demand for communications infrastructure to support a shift towards a digital economy. These include Vocus Group Limited - Australia’s specialist fibre and network solutions provider, and BAI Communications Pty. Ltd, a global communications infrastructure provider.

BDO in Australia’s national leader for Private Equity, Sebastian Stevens, shared his observations from this year’s snapshot:

“TMT has always been the number one sector that private equity invest in and it has become more pronounced during COVID-19,” he said.

“While other sectors of the economy ground to a halt at the start of the pandemic, tech companies continued to push ahead, accentuating its attractiveness to private equity and cementing its position at the top.

“Organic growth is hard to come by and winning new customers has been really tough during COVID-19, where new customer interactions are limited. With the availability of cheap debt, we’re seeing companies cannibalising their competitors to simply buy growth and new customers.

“This dynamic has pushed valuations up due to the scarcity of attractive businesses in performing sectors and has meant that private equity has needed to compete in order to deploy its capital.

“It is a competitive landscape that now looks really attractive to a vendor as private equity is matching valuations for companies from trade purchasers.

“Private equity still has a huge amount of dry powder, but there's a lot of competition out there with the cashed-up corporates wanting to buy as well.

“The downside to this level of competition and the resultant high valuations is that there is always the possibility that not all acquisitions will perform well and the returns to private equity investors will be impacted.”

Private equity funds continue to look towards companies that benefited from the acceleration of consumer focussed and e-commerce trends.

Private equity has outperformed the majority of asset classes in Australasia, with returns spiking following the initial impact of COVID-19 in the Mar-20 quarter. Since January 2016, PE has outperformed the ASX 200 by 111 basis points, achieving 143% returns compared to 32% returns for the ASX 200.

Download the full 2021 Private Equity Report here