Equity deals grow as returns increase
WHEN sportswear queen Lorna Jane Clarkson wanted to expand her business four years ago, she turned to a private equity firm to help her.
Viking Rentals founder Jim Noort did the same thing when he turned an unhappy experience with a dirty toilet into a multimillion-dollar business.
Ms Clarkson (pictured) and Mr Noort join a growing number of Queensland entrepreneurs seeking out private equity investors, not only for an injection of capital but to beef up the value of their business.
Queensland is the thirdmost popular state for private equity investments, behind NSW and Victoria, with 35 deals totalling $1.9 billion between 2010 and 2014.
Champ Ventures director Paul Readdy, whose Brisbane company took a minority stake in exercise clothing firm Lorna Jane in 2010, said private equity enabled business founders to expand without more debt.
“Before we were involved, Lorna Jane was basically a Queensland business,” Mr Readdy told a BDO/ CourierMail business lunch on private equity. “They wanted a partner and now it is an international chain with 40 stores in the US.”
Blue Sky managing director Tim Wilson told the lunch that the size of the deals his firm was sealing with companies had grown over the past few years.
“The cheque size is getting bigger, from only a few million to anything between $15 million and $40 million now,” Mr Wilson said.
Over the past five years, Blue Sky has invested in a range of businesses, including Viking Rentals, Lenard’s and retirement village operator Oak Tree Group.
Private equity firms are often attracted to profitable businesses where the founder is eventually seeking to exit the company. The private equity firm will invest for a certain period and improve its performance before the com- pany is sold or listed on the stock exchange.
“Some people have grown a business all their lives but have not enjoyed what they have created,” Mr Wilson said. “They have mortgaged their house up to the hilt to obtain funding and now they want to take some money off the table.”
Mr Noort said Blue Sky bought into his mobile toilet hire business in 2008 after he struggled to obtain funds for expansion. He had an average of 3000 toilets on hire at any one time before they sold the
For private equity fund investors, the rewards can be high.
Marcus Simpson, QIC head of global private equity, said QIC managed $5.2 billion in private equity and had achieved an annual net 17.8 per cent return on foundation portfolios since 2005. That compares to 11.2 per cent for the stockmarket.
Despite those returns, large superannuation funds are not big investors in private equity because they require heavy management.
Viburnum Funds investment director Melanie Hay said this meant high-net worth individuals and families were some of the biggest investors in private equity funds in Australia.