Fortune favours the brave in 2024: Allens releases PE Horizons report

Mergers & Acquisitions Private Capital Private Equity

2024 will be an excellent year for private equity, according to Allens' annual PE Horizons report, which charts a new sense of optimism - perhaps urgency - among dealmakers as aggressive fiscal measures which stymied PE activity over the last 18 months begin to thaw.

After a relatively subdued 2023, the report's authors are calling 2024 as the year of the exit, with improved macroeconomic conditions providing the ideal environment for PE sponsors to sell assets that have either reached or passed their natural maturity.

'Last year, the closed IPO market combined with the broader macro volatility resulted in a largely constrained exit environment for PE sponsors. Given how PE funds are structured, this thematic was never going to be sustainable', said co-Head of Private Equity, Noah Obradovic.

'This year, PE sponsors are feeling increasingly optimistic that high quality assets will get plenty of interest from a diversified pool of buyers, meaning that formal auction processes will be the dominant path to exit (as has been the case in previous years).

'While PE vendors are unlikely to command the sky-high valuations of 2021, the improved confidence among buyers means those looking to sell high-quality businesses should generally achieve better multiples from private markets than listing on the ASX.

'In particular, PE sponsors looking to sell businesses with strong defensive attributes and/or stable revenues are likely to benefit from a 'multiple arbitrage', particularly if those businesses can credibly be pitched as infrastructure-like. In addition, portfolio companies that can leverage the current tech super cycle, such as businesses that have incorporated artificial intelligence into their platforms, will receive plenty of interest from both strategic acquirers and private capital.

'PE sponsors are well aware that exit preparedness is key to any successful auction process and so many spent the back-end of 2023 prepping assets for sale. We expect this theme to continue as more assets come to market, particularly in the second half of the year'.

PE Horizons also predicts secondary transactions and carveout deals - initiated by both corporate and PE-backed businesses - will feature prominently, particularly in sectors experiencing significant structural and/or demographic shifts such as healthcare, financial services and tech. Take privates will be more challenging as runaway equity markets cause valuation challenges for PE bidders.

Consistent with global trends, the authors also expect increased scrutiny of PE transactions from the ACCC, FIRB and the ATO, adding to an already complex regulatory framework for PE sponsors.

'Understanding any potential regulatory hurdles early and having a detailed plan to engage with the relevant regulators is critical, particularly for transactions involving complex offshore structuring arrangements and/or the acquisition of sensitive businesses', Noah said.

'While we expect to see some short-term turbulence as the economy gradually navigates its path to the much-discussed "soft landing", PE sponsors are generally feeling bullish about 2024 and want to deploy capital. Those who can identify the right asset and move quickly are likely to be rewarded, particularly when interest rates are gradually cut and things broadly recover'.

The release of PE Horizons follows a big year for Allens market-leading PE team, with the firm having advised:

  • Brookfield and EIG on their proposed takeover of Origin Energy for an implied enterprise value of $19.7 billion.
  • Paine Schwartz Partners on its proposed $1.5 billion takeover of Costa Group.
  • Bain Capital on the $959 million proposed takeover of Estia Health.
  • Platinum Equity on the acquisition of JELD-WEN Australasia for $700 million.
  • Pacific Equity Partners on the acquisition of a 50% stake in LMS Energy.
  • KKR on the proposed sale of Australian Venue Co. to PAG.
  • Zimmermann on the sale of a majority shareholding to Advent International.
  • Adamantem Capital on its acquisition of Retail Zoo.
  • TA Associates on the sale of Honan Insurance Group to Marsh.
  • Nitro Software on the contested off-market takeover bids from Potentia Capital and KKR-backed Alludo.