PE Horizons 2021: market update

By Noah Obradovic, Kounny Rattley
Banking & Finance Financial Services Infrastructure & Transport Mergers & Acquisitions Private Equity

Resilience and opportunity across a range of sectors 5 min read

At the start of the year, we predicted 2021 could be the busiest year ever for PE dealmakers in Australia. Now, just past the halfway point, 2021 has so far proved to be momentous with elevated levels of activity across various sectors and asset classes.

Despite the ongoing economic uncertainty caused by COVID-19, business disruptions resulting from recurrent domestic lockdowns and domestic and international border closures, the PE industry demonstrated its resilience with the highest number of announced transactions in almost 15 years.

There are positive indicators that suggest the high level of activity will continue into the second half of the calendar year, closing out what should be one of the busiest periods on record.

PE acquirers have set a blistering pace for megadeals (transactions of at least $1 billion)

At this tempo, 2021 will surpass the value and number of PE deals completed each year since 2006. Unsurprisingly, most of the megadeals have been in sectors that benefited from the pandemic and resulting disruptions. BGH Capital's $1.3 billion proposed take private of ASX-listed Hansen Technologies Limited, and the sale of Mercury Capital-backed MessageMedia for $1.7 billion to Swedish software giant, Sinch, highlight PE buyers' continued strong appetite for technology-focused businesses. However, in the current environment, record valuations for such assets continues to be a problem for PE managers competing against a soaring public equity market and strong competition from trade buyers on the private side.


Banking and financial services continues to be a happy hunting ground, with PE managers putting large amounts of capital to work (eg Cerberus' >$1 billion acquisition of Westpac's auto finance business). The busiest sector, though, has arguably been infrastructure and core-plus, which saw an incredibly busy run of mega deals involving PE and other financial sponsor acquirers, including:

  • a consortium led by IFM Investors making a $22 billion bid for Sydney Airport (which was subsequently rejected by the target board);
  • the sale of a 49% stake in Telstra's InfraCo Towers business to a consortium comprised of Future Fund, Commonwealth Superannuation Corporation and Sunsuper (managed by Morrison & Co) for $2.8 billion;
  • Morgan Stanley Infrastructure Partners' sale of its 40% stake in PEXA as part of the IPO, valuing PEXA at $3.3 billion; and
  • the proposed $5 billion take private of Spark Infrastructure by KKR and Ontario Teachers Pension Plan.

Mid-market activity gains momentum

The first half of the calendar year saw elevated levels of activity in the mid-market (transactions between $250m and $1 billion) with the pool of potential PE buyers continuing to swell,  giving sellers more liquidity options.


Some of the trends continuing to emerge in this space include:

  1. PE targeting businesses in sectors disproportionately impacted (positively or negatively) by the pandemic – KKR's acquisition of a majority stake in New Zealand-based online education company Education Perfect; and BGH Capital's successful acquisition of Village Roadshow Limited (completed on 31 December).
  2. PE demand for healthcare and businesses that provide adjacent services remains high – Pacific Equity Partners was also active in the mid-market space with its acquisition of software and technology business, Citadel, by completing a spate of separate bolt-on acquisitions in the healthcare space.
  3. PE buyers take a longer-term view on assets that faced short-term headwinds from the knock-on effects of COVID-19 – PAG's successful acquisition of office fit-out and design business, Unispace Global.
  4. Local and offshore managers potentially see considerable expansion opportunities in the consumer and retail space – the mooted sales of global eyewear business, Bailey Nelson, and family-controlled Harris Farm Markets, amongst others, will invariably attract interest from PE buyers.

Activity levels in the mid-market for the remainder of the calendar year show no signs of slowing.

Positive debt financing conditions fuel rising activity levels

The significant upswing in PE M&A deal activity has been robustly supported by the renewed appetite and liquidity in global and local credit markets following the lower leveraged loan volumes experienced in 2020. peh-icon_appetite.png

In particular, Australian term loan B volumes for the first half of the calendar year surpassed volumes for the entirety of 2020 and continue to be the financing product of choice for bulge bracket deals pursued by PE acquirors. The core to this increase in volume was the $1.85 billion (equivalent) TLB to finance the MIRA-Aware Super consortium's take private of Vocus Group, which is the largest TLB financing of an Australian LBO.

PE sponsors have also welcomed the return in both depth and liquidity of the institutional loan market, with funds and direct lenders eager to deploy capital and participate in credit opportunities following a limited supply during 2020. This liquidity, together with the low interest rate environment, will continue to fuel PE M&A deal activity for the remainder of the calendar year.

Strong exit conditions – albeit IPO window could be closing

As company valuations remain high and a seller’s market endures, demand for high-quality assets and the increasing willingness of some PE owners to exit are accelerating sell-side deals that were thought to be two or three years away.


As a result, we expect to see many PE managers driven by the prospect of achieving favourable IRRs put a number of businesses up for sale early in the back half of the year. Of particular interest will be those assets in the domestic tourism, auto and broader discretionary consumer space where PE sellers will no doubt contend to buyers that the pandemic has resulted in a structural change as opposed to a temporal shift in domestic spending habits.

Despite the 'IPO window' opening up for PE vendors in the second half of 2020 with a number of successful IPOs by PE sponsors, our view is that the continued market volatility will lead to trade sales being preferred over IPOs. IPO activity in 2021 is already considerably down compared to the same time 12 months ago and there is anecdotal evidence to suggest that, at present, equity investors are preferring technology and growth-focused businesses to others which are more susceptible to short-term liquidity issues caused by border closures and lockdowns.