Senate launches private equity inquiry
The Senate yesterday voted to launch a public inquiry into Australia’s burgeoning private equity industry.
The inquiry will consider the effect of the dramatic increase in private equity activity on the Australian economy and whether the debt-driven nature of many private equity deals has changed the risk profile of Australian businesses.
High profile bank chiefs such as Westpac’s chief David Morgan, Commonwealth Bank’s Ralph Norris and NAB’s John Stewart have expressed concern at the debt levels behind many private equity deals, with Stewart predicting the rush of investment would “end in tears”.
And, as SmartCompany reported this week (read the story here), the great flow of funds into private equity coffers has bypassed many small and micro-cap companies, as cashed-up fund managers pursue deals at the big end of town in an attempt to boost fees and profit margins.
The driving force behind the inquiry, Democrat Senator Andrew Murray, says: “Private equity funds are legitimate market participants that add variety and choice to investment vehicles. But Australia has to be aware of the higher risk they can bring to some markets.”
Australian Private Equity and Venture Capital Association chief executive Katherine Woodthorpe says “heat developing in the media” is more apparent than any concern in the community about private equity.
Woodthorpe rejects the suggestion that the debt levels behind private equity deals are any cause for further regulation. “Regulators such as the Reserve Bank have kept an eye on the business landscape, including private equity, and to date they’ve agreed there are no concerns about private equity.”
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Australian Chamber of Commerce and Industry director of economics and taxation Michael Potter says he sees no reason for concern about the role private equity is playing in the economy.
– Mike Preston
Accountants’ battle heats up
The battle for the SME accounting market just got hotter with the announcement that WHK Group will take on the Horwath name from 1 July. WHK will then go head-to-head with Deloitte Touche Tohmatsu to position itself as the mid-tier SME (small and medium business) market leader.
Kevin White, managing director of WHK Group, says initially four firms, one in Melbourne, one in Sydney and two others, will change their name to WHK Horwath from 1 July. “Others will then follow – it will be a one to two year transition.”
White says WHK is ranked as the fifth largest accounting group in Australiasia with revenue expected to exceed $200 million for 2006-2007. In Australia there are 15 WHK accountancy firms and one financial planning firm.
White says the affiliation with Horwath International will give members access to Horwath’s worldwide systems and processes and help attract and retain key employees.
He says the main competitors for the mid-tier SME high net worth individual is Deloitte. “We will be ahead of BDO and PKF. Deloitte is healthy competition but they are crossing the fence, and will have some partners focused on the big end and some focused on the second tier, so they have their own challenges servicing this market.”
With the number of blue-chip clients shrinking, Deloitte has been pitching itself at the top end of the SME market after being unable to break the stranglehold on big business clients by the top three: Ernst & Young, PricewaterhouseCoopers and KPMG.
In October last year, Deloitte merged with Horwath’s Sydney practice and merged with BDO’s Melbourne practice in July. The merger left a big hole in the Horwath network as the Sydney practice produced almost half of the network’s revenue.
White says: “It’s not surprising Deloitte is moving in to this market. What is surprising is it took them so long as many of these companies become large, so it’s a fantastic part of the market.”
– Amanda Gome
SMEs in the BRW rich list
More than half of the members of BRW’s inaugural Executive Rich list are founders or members of their founding company. Although they may be on staff now, 112 of these rich managers founded the business that pays them so well.
And for managers who aspire to great wealth, finding a small, fast-growing company with a remuneration policy that offers plenty of opportunity to take equity could be a better strategy than climbing the crowded career ladder in a big corporation.
James Thomson, editor of the Executive Rich issue, says: “While the average market capitalisation of companies on the Executive Rich list is $4.2 billion, small and medium-size companies dominate.”
There are 95 companies with a market capitalisation of less than $1 billion, the mark many analysts and fund managers use to decide whether companies are worth covering. And 70 companies have a market value of less than $500 million.
It could happen really fast too. “Thirty seven of the companies on the Executive Rich list were not listed (on the ASX) three years ago, and 12 more were not listed five years ago,” says Thomson.
The richest executive is Rupert Murdoch, with a fortune of $11.5 billion; second is James Packer with $4.9 billion; and third is Frank Lowy with $3.5 billion. At the other end of the list, the founder of women’s retailing chain Noni B, Alan Kindl, scrapes on to the list ranked 200th, with a fortune of $17.4 million.
– Jacqui Walker
Small Business Coalition sets out election policy priorities
A coalition of business representative groups, the Small Business Coalition, has expressed its support for the unfair dismissal exemption for small business and called for action on occupational health and safety and the skills shortage as part of its 2007/2008 policy agenda, released yesterday.
Its agenda says retention of the unfair dismissal exemption is “absolutely essential” for small businesses and argues any change to the law would “be against the interests of small businesses”.
Labor has previously said it will change the law to allow employees of businesses with less than 100 employees to lodge unfair dismissal claims, although it is yet to confirm the policy it will take into this year’s federal election.
A national occupational health and safety and workers compensation regime should also be introduced, the Small Business Coalition says, to eliminate unnecessary costs arising from “similar workplaces in the same industry, or operated by the same business, having to deal with different regulation based on the geographical location of the workplace”.
Small Business Coalition convenor Greg Evans says the group will be arguing strongly for its policy positions in the lead up to the federal election. “This is basically the policy blueprint that we’ll be providing to the Government and Opposition in the lead up to the election. We’ll argue our case with both of them.”
The Small Business Coalition is comprised of representatives of groups such the Australia Chamber of Commerce and Industry, The Council on Small Business Organisations of Australia and the Franchise Council of Australia.
– Mike Preston
Unions seek more money for low paid
The Australian Council of Trade Unions has asked for a 5% increase in minimum pay levels in its submission to the Australian Fair Pay Commission, The Australian Financial Review reports today.
If awarded, the ACTU’s claim would result in a $28 increase for more than a million workers who rely on minimum pay standards.
The Australian Fair Pay Commission begins its review of minimum wages next week and is due to bring down its decision in mid-2007. It’s most recent decision, which took effect in December 2006, awarded low paid workers a $27 a week rise.
New rules for carry-on baggage for international travelers
From midnight tonight, passengers on international flights will no longer be able to take liquids, aerosols and gels in their carry-on baggage, unless they are in containers holding less than 100ml and fit comfortably into a one litre transparent plastic re-sealable bag –about the size of a lunch bag. Passengers are allowed only one bag each.
Liquids, aerosols and gels include:
- Water and other drinks.
- Foods with high liquid content.
- Creams, lotions, cosmetics and oils.
- Perfumes, hair sprays.
- Hair gels, shaving foam.
- Mascara, lipstick.
But you can still buy duty free goods after you pass through security. Get further information from: www.dotars.gov.au
New Government website
The Federal Government has launched a new business website. The site www.consultation.business.gov.au aims to make it easier for government to consult with business.
Economic round up
Reserve Bank financial data released today shows private sector credit jumped 1.4% in February 2007, up from January’s 1.2% increase.
The figure, driven primarily by a 2% rise in business credit, lifts annual growth in private sector credit to a very strong 15%. Personal credit also grew 1% in February, resulting in a 12% increase for the year.
The strong figures provide will be taken as yet another sign that the Reserve Bank is likely to raise interest rates when it meets next week.
Tourist accommodation occupancy rates lifted to 65.2% in the December 2006 quarter, up from 63.5% in the September quarter. Seasonally adjusted total accommodation takings increased by 5.8% to $1,782.2 million from September quarter 2006 to December quarter 2006.