The privateers are back

This morning’s big corporate news concerns hospital group Healthscope, which has just revealed it has received a $1.7 billion offer from a consortium of private equity bidders.

The fact that Healthscope is suddenly in play is very interesting in itself, as it shows a renewed level of interest in the health sector – hardly surprising given the fact that Australia’s population isn’t getting any younger.

But the real story here is the fact that private equity has returned to the Australian market with a big, bold bid.

The sector went extremely quiet during the GFC, as private equity managers were stymied by debt in two ways. Firstly, they were running companies carrying lots of borrowings as a result of aggressive expansion prior to the GFC. Secondly, getting access to funding sources to do new deals was very tough.

But in the last few months we’ve seen thing start to change.

Firstly, CHAMP Private Equity emerged with a big chunk of women’s sportswear retailer Lorna Jane with a view to rapidly expanding the chain.

Then US private equity firm The Riverside Company, which has recently opened offices in Australia, took a 70% stake in franchise chain Boost Juice in a deal worth at least $65 million.

And now we’ve got an even bigger offer on the table for Healthscope.

We are also seeing the private equity players start to sell off investments in order fund their next big buys. The floats of Myer and Kathmandu are good examples, and today there are rumours in The Australian that Lazard may be set to float credit agency Dun & Bradstreet (although D&B didn’t have a comment when contacted this morning by SmartCompany).

This resurgence of the private equity players is good news for SMEs on a number of levels.

Firstly, it means we are starting to see some alternatives to bank finance open up. Not every company will be attractive to private equity, but at least the Boost and Lorna Jane deals show the funds are looking at the smaller end of the market.

Secondly, it suggests businesses valuations should be heading back up – slowly, to be sure, as these guys are bargain hunters, but at least things are heading in the right direction.

Finally, it’s another sign that financial markets and the wider economy are recovering well. The Budget papers this week suggested we are headed to a real boom year in 2012-13 when the economy hits top speed and we are now starting to see corporate heavyweights positioning for this.


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