australian private equity & venture capital journal

AUGUST 2014 · Year 22 No 244

Bid for wine company raised to $3.4bn

$2.6 billion private equity float success

Overseas trade sale provides $NZ700m exit

Australian Private Equity & Venture Capital Journal AUGUST 2014 · Year 22 No 244 | 2

CONTENTS

EDITOR’S LETTER

Canberra fails to utilise venture 3

PERFORMANCE

$2.6bn private equity float success 4

Overseas trade sale provides

$NZ700m exit 4

Future Fund looks to private equity

to maintain performance 7

Australian managers ranked among

world’s best 13

INVESTEE NEWS

London Stock Exchange float to fuel

Asia-Pacific push 12

Start-up partners with leading

vaccine producer 17

CORRECTION: MEO Australia 18

INVESTMENT ACTIVITY

Bid for wine company raised to

$3.4bn 4

Additional firm reported to have

joined $1bn bid 6

Multi-million bids expected for

New Zealand-owned business 9

Seed fund now investing more than

$NZ5m annually 11

Chinese UK acquisition could have

significance for Australia 14

Private equity backing for oil and

gas services venture 15

South African investment company

buys New Zealand retailer 15

US venture funds invest $3.6m in

graphic design start-up 15

Creative fund invests in ‘next

generation’ fashion business 16

NEWS

FSI interim report recognises role of

venture capital 7

AVCAL calls for innovation policy

backed by funding 7

New partnership to offer debt to

private companies 13

Private banking business changes

hands 13

Digital products now among

New Zealand’s leading exports 13

Venture-backed software company

in IPO queue 15

$NZ1m plus government funding for

three incubators 15

Tech company boss to speak at

awards event 17

Online business makes acquisition 18

Chinese interest in dairying

business 18

PEOPLE MOVES

New partner for upper mid-market

firm 14

Principle Advisory Services recruits

leading adviser 15

Three promoted as major fundraising

progresses 17

NEW FUNDS & FUNDRAISING

Growth venture fund raises over-target

$60m 6

$30m sought for new venture fund 9

Wotif.com founder plans angel fund 14

Wind farm trust targets 10.5 per cent

return 17

INFORMAL VENTURE CAPITAL

US venture capitalist invests in

Melbourne start-up 18

CONFERENCES & ROUNDTABLES

AVCAL alpha speakers confirmed 18

COMING EVENTS

Coming Events 24

ShARES ChART

Shares Chart 25

FEATURES

DATA ANALYSIS POINTS TOSUCCESSION DEALS 19

REARVIEW MIRROR 22


AUSTRALIAN PRIVATE EQUITY & VENTURE CAPITAL JOURNAL

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Australian Private Equity &

Venture Capital Journal is an

Independent publication. The

Journal welcomes editorial

contributions. All opinions are

those of the authors. All material

copyright Australian Private

Equity & Venture Capital Journal

and individual authors.

ISSN number: 1038–4324

EDITOR’S LETTER

There are essentially two ways in which

government can promote business

development, through funding or

removing legal and legislative roadblocks.

Eleven months after its election, the

Coalition government has provided neither

form of assistance to venture capital.

The government’s first budget took

the knife to industry assistance packages

including ending the Innovation Investment

Fund (IIF) program and abolishing

Commercialisation Australia.

The abolition of the IIF came as no great

surprise but what was surprising was that

no replacement policy was put forward

to stimulate the venture sector. This is

a sector that the UK government, for

example, identified as a key to recovery

soon after the global financial crisis (GFC)

and funded.

Australia weathered the GFC much better

than the UK because of the minerals boom

but with that boom now over we need to

develop replacement industries. Surely the

venture sector has a key role to play in this?

The Abbott government did announce

in the budget a $1 billion Medical Research

Future Fund, with strings attached. That,

however, only cast doubt on government

planning. Australia has a strong track record

in research and particularly in medical

research. What we don’t have is a similar

record in commercialising that research.

This has been pointed out by a number of

government reports.

AVCAL is calling for the government to

establish a self-sustaining (as the IIF largely

was) innovation system including a $500

million translational innovation fund which

could be used to attract matching private

sector funding (yes, again like the IIF).

AVCAL is also arguing that 10 per cent of

the Medical Research Future Fund should

be allocated specifically to establish a

translational medical innovation fund.

But if we accept treasurer Joe Hockey’s

contention that any government funding

of commercial enterprise is inappropriate,

surely the pro-free enterprise Liberal Party,

should be working on removing legal and

legislative roadblocks?

But not much seems to be happening

there. Consider the seemingly simple

matter of reversing the Labor Party’s

changes to rules governing the taxation

of employee share options (ESOPs). The

changes were made to prevent ESOPs

being used by large companies to avoid tax

in remunerating key employees. But this

made it impractical for cash constrained

early stage companies to use ESOPs to help

attract experienced staff.

Prior to the election the Liberal Party

promised action. The issue is, however,

apparently still being reviewed by the

offices of the prime minister and of industry

minister Ian Macfarlane.

And what of other notable road blocks;

the tax treatment of collective investment

vehicles, for example? This issue was not

resolved by the former government and,

apparently, remains to be addressed by the

Coalition.

But it is not all bad news from Canberra.

Despite Commercialisation Australia being

abolished, the organisation’s case managers

remain in the employ of the Department of

Industry and are continuing to work with

their early stage business clients. Meanwhile

key staff are now focusing on building up an

international business matchmaking service

to find partnership and investment support

for such businesses. Apparently we can

expect an announcement in November. Let’s

hope it will be one of many.

ADRIAN HERBERTManaging Editor, Australian Private Equity & Venture Capital Journal

CANBERRA FAILS TOUTILISE VENTURE


INVESTMENT ACTIVITYBID FOR WINE COMPANY RAISED TO $3.4BN

Kohlberg Kravis Roberts (KKR) has

made a revised offer of $3.4 billion for

Treasury Wine Estates (ASX: TWE), now in

partnership with Rhône Capital.

Treasury, which rejected an earlier bid

(APE&VCJ, Jun 14), has agreed that “it is in

the interests of its shareholders” to engage

further but has said it plans to grant only

non-exclusive due diligence. This will give

any other interested parties opportunity to

submit bids.

In its 4 August ASX announcement,

Treasury said the new offer of $5.20 cash

per share was an increase of 50 cents a

share or 10.6 per cent over KKR’s $4.70

cash per share offer of 16 April. The offer

also represents a premium of 40.9 per cent

over the $3.69 closing price of Treasury

shares on 15 April.

Treasury noted that the proposal to

acquire all of its shares by way of a scheme

of arrangement remained indicative, non-

binding and conditional and granting of

non-exclusive due diligence would depend

on the negotiation of an appropriate

confidentiality agreement.

If an offer results, Treasury’s board

would assess whether it delivered a value

proposition superior to managements

renewed strategic plans to:

• Increase and accelerate consumer

marketing investment in the company’s

brands;

• Continue to drive efficiencies and

improve the company’s cost base; and

• Address structural opportunities in

the company by focusing on commercial

brands separately from the luxury and

“masstige” (downward extension of

prestige) portfolio in Australia (including

initiatives to unlock further supply

chain cost savings); as well as inorganic

opportunities to build on management’s

existing growth platforms for Treasury’s

luxury and “masstige” brands.

Treasury has performed poorly since it was

spun off from former parent Fosters Group

in 2011 but it includes high value brands

such as Rosemount and Penfolds, maker of

Australia’s most famous wine, Grange.

The turnaround strategy announced with

the rejection of KKR’s initial bid, appears to

have had some success. The company ran

a special deal in July offering a $650 wine

fridge for $200 to buyers who bought six

or more bottles of high-end Penfolds wines

through a retail outlet.

It has been reported that up to 12,000

customers took up the offer.

Rhône Capital is a New York-based

private equity firm which tends to focus on

European and trans-Atlantic investments.

The firm was founded in 1995 by billionaire

financiers Robert Agostinelli and Steven

Langman who remain managing partners.

PERFORMANCE$2.6BN PRIVATE EqUITY FLOAT SETS NEW hIgh

Carlyle Group and TPG Capital investee

Healthscope made a successful return

to the ASX on July 28 after raising $2.6

billion, a new high for an Australian private

equity float.

The most recent private equity float of

similar scale was TPG and Blum Capital’s

$2.3 billion float of department store

chain Myer (ASX: MYR) in 2009.

The float of Melbourne-based

Healthscope was also the largest on the

ASX since Queensland rail business QR

National – now Aurizon (ASX: AZJ) –

raised $4.6 billion in 2010.

Carlyle and TPG have retained 38 per

cent of Healthscope which operates private

hospitals, medical centres and pathology

laboratories throughout Australia. The

business has also begun expansion of its

pathology business into Asia. The two

international private equity firms are to

hold their joint stake in voluntary escrow

until the company announces results for

the 2015 financial year.

Healthscope chief executive Robert

Cooke acquired more than 1.47 million

shares in the offer.

Healthscope (ASX: HSO) opened at

its issue price of $2.10 and immediately

dropped 1 cent to $2.09. The stock ended

the day – after almost 91 million shares

had been traded – 5.2 per cent higher

than the listing price at $2.21 on a day

in which the S&P/ASX 200 Index fell

0.1 per cent.

Institutional shareholders took up 58 per

cent of Healthscope’s shares in the IPO

and retail investors 34 per cent through a

broker firm offer as there was no public

offer. Holders of ASX-listed debt securities

Healthscope Notes took up 7 per cent,

or $164 million worth of stock, at a

discounted $2.0475 a share offer.

Healthscope forecast in its prospectus

that it would increase revenue growth in

the 2015 financial year by 5.8 per cent to

$2.448 million from $2.314 million in 2014.

It said the increase would be driven by

increasing earnings across its Australian

hospitals and Australian and international

pathology divisions.

Carlyle and TPG took Healthscope

private in mid-2010 (APE&VCJ, Jul 10) for

$2.7 billion representing $6.26 per share.

Since listing, Healthscope shares peaked

at $2.27 and closed on 4 August at $2.23.

PERFORMANCEOVERSEAS TRADE SALE PROVIDES $NZ700M ExIT

Pacific Equity Partners (PEP) is to exit

New Zealand snack food company Griffin’s

Foods Limited through a $NZ700 million

sale to Philippines-based Universal Robina

Corporation (URC).

The sale is subject to approval by the

New Zealand government’s Overseas

Investment Office.

Griffin’s is New Zealand’s leading

biscuit and snack food company and

manufactures products such as Gingernuts,

Cookie Bear, MallowPuffs, Eta Salty Snacks

and Nice & Natural snack bars.

The company exports to about 20

countries including Australia.

URC is one of the largest food

and beverage branded products

manufacturers in the Philippines and

has a market capitalisation in excess of

$US7.6 billion. The company also has

growing export markets particularly in the

ASEAN region.

PEP bought Griffin’s from Danone Asia

Pte Ltd in 2006 for an enterprise value of

$NZ385 million. At the time, the business

had annual net sales revenue of $NZ176

million and led the New Zealand biscuit

market while it held second place in the

savoury snacks market.

Under the ownership of PEP and

management, more than $NZ180 million

was invested in developing two new

manufacturing centres in Auckland and


acquiring the Nice & Natural snack bar

business. This has taken Griffin’s to the

number one spot in the New Zealand

snacks market.

An export sales division was also

established under PEP. Overseas sales of

Griffin’s products have grown to generate

over a third of the company’s revenue.

Earnings before interest, tax, depreciation

and amortisation (EBITDA) have also

grown substantially.

URC expects to use its established

sales networks in the Philippines, Vietnam,

Thailand, Indonesia, Malaysia, Singapore,

Hong Kong and mainland China to further

increase Griffin’s exports.

URC has committed to retain

production in New Zealand where the

company employs about 800 people.

URC also plans to retain Griffin’s senior

management team.

Griffin’s was founded by John Griffin

in Nelson in 1864. Despite being under

overseas ownership since the 1960s,

the company has maintained its own

brands and products. Kraft’s Nabisco

acquired Griffin’s in 1962 and held it

until 1990 when it was sold to Britannia

Foods. That year, Britannia sold Griffin’s

confectionary business to Cadbury’s and

in exchange acquired Cadbury’s Hudson,

Cookie Bear and chocolate biscuits range

for Griffin’s before on-selling the business

to Danone.

Once URC’s acquisition is completed,

Griffin executive chairman Ron Vela

will stand down but will be retained as

a consultant. Griffin’s chief operating

officer Alison Taylor will take over as chief

executive.

PEP managing director David Brown said

the private equity firm was proud of its

strong track record of growing earnings in

corporate carve out situations by backing

local management teams to execute on

strategies to significantly expand their

businesses.

“Working with the Griffin’s management

team has been a fantastic experience and a

great example of collaboration in a sector

we know well,” he said.

Brown said he was confident the business

would continue to grow under URC.

URC chief executive Lance Gokongwei

said that in recent years his company

had been looking for opportunities for

acquisitions and partnerships in line with a


vision of becoming a significant regional

player in snack foods and beverages.

“While we have already built very strong

brands, our strategy is to continue offering

our existing consumers and markets in the

ASEAN and Greater China regions with

innovative, convenient, lifestyle-focused

and on-the-go products,” he said.

“We believe Griffin’s is a natural

strategic fit to our existing snack foods

portfolio given its strong brand heritage

in New Zealand – a country trusted

worldwide in having high credibility

when it comes to food quality, safety and

authenticity.”

He said URC regarded Griffin’s as being

at the forefront of global consumer trends

for snack products and was excited to

have the opportunity to introduce and

grow its brands in new Asian markets.

Credit Suisse and First NZ Capital

advised Griffin’s on the transaction.

INVESTMENT ACTIVITYADDITIONAL FIRM REPORTED TO hAVE jOINED $1BN BID

Pacific Equity Partners (PEP) is reported

to have partnered with Kohlberg Kravis

Roberts (KKR) in its $1 billion bid for

compliance and risk management

company SAI Global (ASX: SAI).

SAI announced an indicative bid from

Australia’s largest private equity firm on

26 May (APE&VCJ, Jun 14). PEP proposed

paying $5.10 to $5.25 a share for all of

SAI’s shares.

The company effectively put itself up

for sale or break-up by issuing a statement

on 2 June that it would conduct “a formal

process to review strategic options”. SAI

said that after the approach from PEP

it had been approached by a number of

other parties expressing interest in the

company and its businesses.

SAI’s profits have declined over the

last two years and a recent report

suggested that it might have to pay higher

royalties from 2018. SAI currently pays

Standards Australia a 10 per cent royalty

on its earnings from publishing and selling

thousands of Standards Australia industrial

standards. The royalty level was set in a

15-year contract granted when SAI

was spun out of Standards Australia

and floated in 2003. Similar royalty

agreements in other countries are

generally 50 per cent or higher.

SAI has made no further comment but

in its 2 June announcement said its board

and management were continuing to work

on opportunities to improve operational

efficiencies and would update the market

with its full year results announcement

in August.

SAI shares closed at $4.82 on 5 August.

NEW FUNDS & FUNDRAISINggROWTh VENTURE FUND RAISES OVER-TARgET $60M

Daniel Petre and Craig Blair, formerly

of netus, have closed a new technology

growth stage venture fund above target at

$60 million.

The new AirTree Ventures fund had

originally sought to raise $50 million.

“We received such significant interest

from investors that we decided to extend

the fund to $60 million and close our

fundraising early,” said Blair.

He said they had to turn away some

investors who had been keen to invest.

Petre and Blair expect to make up to 15

growth capital investments of $2 million

to $5 million from the fund over the next

three years.

Investors in the fund have not been

revealed but are reported to include

investor groups from Westpac, UBS

and Macquarie Bank. Other investors

include family offices and high net worth

individuals.

AirTree is the third Australian technology

fund with which former Microsoft Australia

chief executive Petre has been a key figure.

Petre started ecorp in 1997 with capital

of $30 million provided by Packer family-

controlled then ASX-listed PBL. Ecorp was

split off and floated in 2003 raising $385

million.

In 2005, Petre linked with former eBay

Australia chief executive Alison Deans to

set up $40 million investment company

Netus which was 50 per cent owned by

News Corp (ASX: NWS). Blair joined Netus

in 2007.

The netus management team bought

out News Corp’s stake in 2012 (APE&VCJ,

Jun 12). At the time, Petre said netus had

delivered an internal rate of return (IRR) of

more than 50 per cent.

Netus was sold to Fairfax Media (ASX:

FXJ) for a reported $50 million in 2012.

Blair is currently chairman of social

television start-up Beamly. He was

previously chief executive of Beamly (then

zeebox) and a director of online travel

pioneer Travelselect/Lastminute.com.

Businesses in which Petre and Blair have

been involved in founding or funding over

the years include Downstream Marketing,

Allure Publishing, Ebay, Expedia, ninemsn,

zeebox, Wayfair and Paws for Life (now

Pet Circle).

Blair said: “The Australian start-up space

is expanding significantly with a wide

variety of accelerators and incubators

helping bring more companies on

stream than ever in the past. AirTree will

complement this effort by being able to

commit growth capital to the best of this

new class of ventures. Great start-ups,

once they have worked out what their

product or service offering is, need the

capital to fuel growth but they also need

investors who can bring proven experience

in helping to build successful companies.

We feel this combination of funding

and expertise is something that AirTree

can provide.”

He added that in addition to providing

capital and hands-on expertise, AirTree

would give ambitious entrepreneurs the

benefit of its founders’ unique experience

in creating high-value exits strategies for

Australian companies.

Other members of AirTree’s

management team are investment

manager Paul Bennetts and operations

manager Jess Heffernan.

Bennetts was previously investment

manager with Tulla, the Sydney-based

family office of the Maloney family. Kevin

Maloney and his son Mark Maloney built up

mining services business The Mac Services

Group that listed on the ASX in 2007 and

was sold to Oil States International in 2010.

Prior to joining Tulla, Bennetts spent

five years with investment bank Goldman

Sachs.

Bennetts has first-hand experience of

start-up ventures having founded a small

but successful retail operation and co-

founded an education marketplace.

Heffernan previously worked

in operations management for a

communications organisation and also

served as a business consultant for start-ups.


NEWSFSI INTERIM REPORT RECOgNISES ROLE OF VENTURE CAPITAL

Industry association AVCAL has welcomed

much of the Financial System Inquiry

interim report released last month (July).

“The Inquiry has clearly identified that

small and medium sized businesses in

Australia need better access to growth

capital funding, in particular venture capital

and private equity,” said chief executive

Yasser El-Ansary.

The report points out that venture

capital and private equity funds tend to

finance more innovative and high-growth

businesses. It notes: “these firms are drivers

of long term productivity growth”.

However the report says private equity

and venture capital fee structures, and the

services these fees reflect, might not always

be transparent to investors; it suggests

greater transparency would allow investors

to make better informed investment

choices and would lead to greater

competition.

AVCAL has responded saying that

the high level of involvement in investee

businesses by private equity and venture

capital managers justifies the level of the

industry’s fees.

The association says the interim

report recognises that, unlike other fund

managers, venture capital managers are

typically very involved in developing the

businesses in which their funds invest,

providing mentoring, business expertise and

access to industry and market connections.

The report notes that Australia’s venture

capital and private equity markets are small

and that there are barriers to generating

significant investor interest.

El-Ansary said AVCAL believed

Australian private equity and venture

capital funds could play a more significant

role, supporting investment into up to

an additional 30,000 Australian

businesses, if current roadblocks to more

efficient fundraising were addressed as

part of the review.

“Australian venture capital funds are

currently invested in around only 200 start-

ups and early stage ventures. Private equity

funds are currently invested in fewer than

350 businesses in Australia. This means

they presently have funding capacity to

back less than 2 per cent of the investable

pool of up to 30,000 businesses,” he said.

“There is substantial scope for the industry

to play a greater role in building Australian

businesses and creating new employment

opportunities – especially in new high

innovation industries of the future – if the

inquiry makes recommendations for changes

to some existing policies and regulations ...”

He said the inquiry appeared to agree

with AVCAL’s view that reform of the

Venture Capital Limited Partnership (VCLP)

tax rules would be one very simple way

that the government could help encourage

greater private sector investment in

Australian businesses.

The report states: “the tax treatment of

VCLPs is complex and may be a barrier to

fundraising”.

It notes that a Board of Taxation review

of the legislation has already made

recommendations to address this.

The report also says that improving

access to quarterly R&D tax credits would

help alleviate cashflow constrains for new

ventures.

Submissions to the inquiry suggest

that some Australian tax settings distort

international financial flows and restrict

the financial integration of the Australian

economy, issues that have previously been

raised by the Johnson, Australia’s Future

Tax System and Board of Tax reviews.

Some proposed changes have been

partially implemented, such as changes

to the investment management regime

and a new tax system for managed

investment trusts. Other changes are still

being considered by the government

such as the tax treatment of collective

investment vehicles.

PERFORMANCEFUTURE FUND LOOkS TO PRIVATE EqUITY TO MAINTAIN PERFORMANCE

Future Fund chairman Peter Costello

has indicated the $101 billion fund is

now looking beyond listed equities to

private equity, infrastructure and other

alternative assets (mainly hedge funds)

to drive returns.

The former federal treasurer was

commenting after the fund reported a 13.9 per

cent return for the year to June 30.

Since its creation in May 2006, the fund

has achieved an annualised return of 7.1 per

cent just under its target of 7.2 per cent

(CPI plus 4.5 per cent).

Costello said: “These returns show the

value of long term and patient investing.

In the fund’s early days, in a challenging

investment climate, the returns were below

the target range but disciplined adherence

to clear objectives have delivered good

results over the medium term. The fund is

now focused on performance through to

2020 and beyond.”

He said that over recent years the

fund had benefited from big rises in the

values of US equities but this could not

be expected to be such a strong driver of

returns over the next few years.

He noted that the fund now had large

allocations to private equity, infrastructure

and other alternative assets in total

accounting for 30.3 per cent of the fund

assets as at December 31. This compared

with equities at 43.2 per cent. These

allocations had not changed greatly since

then, he added.

The Future Fund increased its allocation

to private equity by $1.86 billion to $7.47

billion (7.7 per cent) over the 2013 calendar

year.

The fund’s private equity investments are

predominantly with global fund-of-fund

managers and large international buyout

firms. Archer Capital and Quadrant Private

Equity are the only local private equity

mangers in which the Future Fund has

invested.

A new private equity fund manager,

European mid-market buyout firm

Vitruvian Partners, has been added the

fund’s roster this year. Vitruvian raised a

£1 billion second fund late last year. The

firm was co-founded by former Apax

Partners executives.

NEWSAVCAL CALLS FOR INNOVATION POLICY BACkED BY FUNDINg

Industry association AVCAL has called

on the federal government to produce a

national innovation policy to help drive the

Australian economy.

Under that policy, AVCAL would like to

see the government set up a $500 million

translational innovation fund and dedicate


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$100 million of the proposed $1 billion

Medical Research Future Fund to setting

up a translational medical innovation fund.

In a submission to the Senate Inquiry on

Australia’s Innovation System, AVCAL has

highlighted the need for policy reforms to

recognise that innovation is not just about

research but also about the translation of

that research into usable and productive

outcomes.

“Over the years successive governments

have looked at various ways to

strengthen university-industry linkages

to help stimulate innovation,” AVCAL

chief executive Yasser El-Ansary said.

“We know what we have to do but

unfortunately we’ve continued to ignore

the ‘development’ side of ‘research and

development’. We have to recognise that

supportive innovation policy systems play

a critical role in taking research from the

laboratory to the marketplace, and this

is particularly true for small and medium

sized economies like ours.”

In past years the Commonwealth

government has spent around $9 billion

annually supporting research and

innovation, with a heavy emphasis on

research and industry assistance. A little

known fact is that just 1.5 per cent of

this expenditure has been dedicated to

supporting the translation of research into

commercial outcomes.

“Given the very small investment

we make in supporting translation, we

shouldn’t be surprised at our relatively

poor performance when it comes to

commercialisation rates from research in

Australia,” El-Ansary said.

Private investment through angel,

venture capital and private equity funding

plays a vital role in helping to take such

innovative businesses to the next level. The

Financial System Inquiry’s interim report

in July acknowledged this, stating that:

‘venture capital and private equity funds

tend to finance more innovative and high-

growth firms. These firms are drivers of

long-term productivity growth’.

“As an economy, we know that we have

to lift our game around productivity and

we have to take decisive action to set

ourselves up for enduring prosperity,”

El-Ansary said.

A national innovation policy was

needed to capitalise on the valuable

(and mostly publicly funded) research it

already generates in science, technology,

engineering, medical science and other

advanced technologies.

AVCAL’s key recommendations to deliver

a productive and self-sustaining innovation

system include:

• introducing a dedicated translational

innovation programme with a long-term

focus. This should include a new $500

million translational innovation fund to

attract matching private capital into

high-risk but high-potential early stage

companies looking for commercialisation

assistance, and a new translational

medical innovation fund funded from

10 per cent of the proposed $1 billion

endowment of the Medical Research

Future Fund (announced in the federal

budget);

• delivering a consistent tax outcome

for all investors in private ventures and

SMEs through Venture Capital Limited

Partnerships (VCLPs);

• improving existing migration policies to

better target innovation-building;

• introducing quarterly R&D tax credits for

early stage companies;

• reforming the Employee Share Scheme

tax framework for early stage companies;

and

• strengthening the nexus between

publicly-funded research and economic

outcomes.

Separate to the Senate Inquiry, AVCAL

has also been advocating for federal

government policy changes to be

included in the National Investment and

Competitiveness Agenda, which is due to

be released in coming months.

AVCAL’s full submission to the Senate

Inquiry on Australia’s Innovation System

can be viewed at: www.avcal.com.au

INVESTMENT ACTIVITYMULTI-BILLION BIDS ExPECTED FOR NEW ZEALAND-OWNED BUSINESS

Private equity firms CVC Capital Partners,

Kohlberg Kravis Roberts (NYSE: KKR) and

The Blackstone Group (NYSE: BX) are

reportedly interested in acquiring

cardboard-based beverage and food carton

business SIG Combibloc Group AG (SIG).

The Switzerland-based global business

is owned by Auckland private investment

company Rank Group Limited.

SIG, which employs more than 5,000

people in more than 40 countries, is valued

at around $US5 billion. The business has a

plant in Broadmeadows, Melbourne.

Earlier this year, Rank Group appointed

Goldman Sachs Group to explore a sale of

SIG. First round offers are due in September.

Bloomberg News identified the private

equity firms as having held talks with

advisers about potentially acquiring SIG.

According to Bloomberg’s sources, the

firms are expected to form syndicates with

each other or third parties to bid.

Rank Group’s other investments include

New Zealand-based pulp, paper and

packaging business CarterHoltHarvey.

NEW FUNDS & FUNDRAISINg$30M SOUghT FOR NEW VENTURE FUND

Listed funds manager Blue Sky Alternative

Investments (ASX: BLA) has begun

fundraising for its second venture capital fund.

Blue Sky’s venture operation, Blue Sky

Venture Capital, has is targeting $30 million

for the new fund and has set 22 August

as the date for a first close.

The new fund is to be registered as

an Early Stage Venture Capital Limited

Partnership (ESVCLP) which will make

returns to investors tax exempt. The fund

is to target a 30 per cent internal rate of

return (IRR) net of fees.

Announcing the fundraising, Blue Sky

Venture Capital investment director Dr

Elaine Stead said competition for high

quality venture capital deals in Australia

was at an 11- year low with only $100

million invested in 2013 compared with $29

billion in the US.

“There has been no better time to invest

in the Australian market,” she said.

“Our new fund is aiming to raise $30

million, almost a third of what was invested

in Australia last year ... This places Blue Sky

in a strong position to take the pick of the

best opportunities in an asset class with

the potential to generate very high levels of

capital growth.”

Stead said that 80 per cent of Australian

venture investment was currently directed

to start-ups and early stage companies.

Blue Sky, however, intended to focus

on the underpenetrated and lower risk late

venture and early expansion stage sectors.


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She said the firm was also committed

to maintaining a technology and industry

agnostic approach in contrast to most

local venture firms which typically

allocated 80 per cent of investment to the

“crowded” biotechnology and IT spaces.

Stead said the new fund would be

invested across a diverse and balanced

portfolio of deals.

“We look for validated, game-changing

products or technologies which offer a

global reach; rapid scalability or growth;

established, experienced management

teams and businesses where we believe we

can genuinely add value,” she said.

The new fund will invest in Australian

and overseas companies as well as having

the capacity to invest alongside overseas

venture firms. Blue Sky recently formalised

a co-investment partnership with North

American healthcare specialist fund Five

Corners Capital.

“We back companies that address

global markets and our investment

partnerships ensure our companies

have access to the expertise, capital and

partnerships needed to support their

growth,” Stead said.

Blue Sky manages $600 million worth of

assets across private equity, venture capital

hedge funds real assets and real estate.

The private equity and venture capital

division has delivered a 16.3 per cent

internal rate of return (IRR) net of fees to

investors since inception compared to an

industry benchmark of 4.9 per cent.

Early stage company investments

include Mexican-style fast food restaurant

chain Beach Burrito, an investment

made by the private equity team before

the venture operation was established,

biotechnology company Hatchtech

and online pet supplies business Pet

Circle (Paws for Life). The latter two are

investments of Blue Sky’s first ESVCLP

venture capital fund which raised $10

million last year.

The first fund was launched with a

similar mandate to the new fund and those

two early stage investments illustrate some

of the strategies Stead outlined for the

new fund.

Hatchtech (APE&VCJ, Nov 13) has been

involved in a long process to develop and


gain approval for a new low toxicity single

application treatment for head lice. The

product is, however, now close to being

launched on the market with the US Food

and Drug Administration (FDA) believed

to be close to granting a New Drug

Application (NDA).

Pet Circle (formerly Paws for Life ˗

APE&VCJ, Feb 14) is also a relatively late

stage investment for a venture capital firm.

The business was launched in 2011and

was already generating sales when Blue

Sky invested. Blue Sky’s investment was

intended to rapidly ramp up operations of

the business.

INVESTMENT ACTIVITYSEED FUND NOW INVESTINg MORE ThAN $NZ5M ANNUALLY

The New Zealand Venture Investment

Fund’s (NZVIF) Seed Co-investment Fund

is now investing more than $NZ5 million

a year and recently invested in its 100th

company.

Government-sponsored NZVIF set

up the fund in 2006 to support the

development of angel investment in

New Zealand. Angel groups can apply

to partner with the fund. The fund then

invests in start-ups on a dollar for dollar

basis alongside partners.

Ten years ago, angel group investing was

minimal in New Zealand but the support of

the fund has helped the sector to develop

with the result that angel investment

in start-up ventures has increased

substantially.

In 2006 the fund invested $200,000

alongside two angel groups. The number

of partners and investments has risen

steadily since then with the $NZ5 million

mark passed for the first time in the year

to June 2013 and again exceeded in the

year to June 2014 (for details see table

below).

The fund has now invested a total of

just under $NZ30 million in 115 companies.

The portfolio ranges from hi-tech robotics

through healthcare, agricultural and

industrial technologies to a range of

software companies.

Investee companies include Invert

Robotics, Puteko, D’Arcy Polychrome,

Booktrack, Nexus6, Mesynthes, Hydroxsys

and Rockit Apples.

Two companies have been exited:

software company Greenbutton after its

acquisition by Microsoft (APE&VCJ, May

14), and wireless electricity transmission

technology company HaloIPT after it was

acquired by US company Qualcomm.

NZVIF chief executive Franceska Banga

said the fund’s portfolio showed the

depth and breadth of technology being

developed by emerging New Zealand

companies.

“Puteko, which we invested in alongside

Sparkbox Ventures when it was an

idea being commercialised by young

developers in Christchurch, is developing

unique animation software which creates

3D images from 2D. There is huge interest

in Japan and the US and the company

recently raised over $NZ1 million in new

capital,” she said.

“Rockit Apples is a Hawkes Bay

company backed by angel investors from

Tauranga. It has taken unique miniature

apple technology developed by scientists

at Crop and Food which it has transformed

into a healthy snack food available in

retail chains like Starbucks and Marks and

Spencers across Asia, Europe and the US;

it hopes to be the next Zespri.

“Companies like Mesynthes, Hydroxsys

and Rockit Apples illustrate the range of

applications emerging from New Zealand’s

traditional strengths in the primary sector.

“The major area of investment is in

software and services. Tradme and Xero

demonstrated the potential of creating

world-class software companies in New

Zealand. Angel investors are now backing a

lot of new start-ups in the sector. Over 40

per cent of the Seed Co-investment Fund

portfolio companies are software-related.”

Banga said it remained too early to

be able to predict the fund’s overall

investment performance as most of the

companies were still at very early stages in

their development.

But she noted: “We have, however, seen

some healthy returns from exits from Halo

IPT and GreenButton. The rule of thumb

is that most companies will fail but a few

very good performers will bring positive

returns overall across a portfolio.

“Since the fund’s establishment, NZVIF

has entered into 15 partnerships with

angel groups and New Zealand has seen

considerable growth in angel investing. But

it is still in its infancy.

“While it is good to see new angel

investment networks establishing – such

as Flying Kiwi Angels and Arc Angels

– some established angel groups have,

over the past couple of years, closed

down or reduced investment activity. We

need a stream of new groups and new

capital entering the market, adding to and

complementing a range of existing angel

networks and funds to build the market to

a sustainable level.”

Although the Seed Co-investment

Fund focuses on early stage investing,

its angel investor group partners have in

many cases provided follow-on funding.

As a result, while the fund has invested

a total of $NZ29.9 million in its portfolio

companies, its partners have invested

more than twice as much ˗ $NZ61.5

million. Additional private investment has

amounted to $NZ77.6 million so the ratio

of the fund’s investments to all private

investment is 1: 4.6.

The average size of the fund’s initial

investments is currently $NZ170, 508.

Fifty per cent of the investee companies

are involved in exporting and cumulative

revenues from the portfolio companies

to the end of June amounted to about

$NZ100 million.

Here are brief outlines of some of the

companies in the portfolio:

• Booktrack: Has developed technology

that matches music to text for readers of

e-books. Products on sale internationally.

Founded by Paul Cameron in 2010.

Lead and key investors: Sparkbox, Peter

Thiel.

• Hunter Safety Lab: Developer of hi-tech

safety clothing and equipment designed

to prevent accidental shootings by

hunters.

Founded by Michael Scott in 2009.

Lead and key investors: Angel HQ.

• Invert Robotics: Awards winning

robotics technology company.

Founded by James Robertson in 2010.

Lead and key investors: Powerhouse

Ventures.

• D’Arcy Polychrome: Has developed

technology to deliver pre-packed colour

for the decorative paint market.

Founded by Rachel Lacy in 2011.

Lead and key investors: Pacific Channel.

• TracPlus Global: Provides global

tracking, sensor monitoring and data

analysis services to companies in the


energy, oil and gas and mining sectors,

emergency service agencies, explorers

and adventurers, and armed forces in

over 30 countries.

Founded by Chris Hinch in 2008.

Lead and key investors: Otago Angels.

• Biomatters: Company’s ‘Geneious’

programme is one of the most frequently

cited commercial software packages for

DNA sequence-based research. Founded

by Alexei Drummond in 2006.

Lead and key investors: ICE Angels.

• Rockit Apples: Has developed miniature

apples through cross-breeding;

packages them in innovative plastic

tubes which it exports to overseas

markets.

Founded by Geoff Allison in 2005.

Lead and key investors: Enterprise

Angels.

• Hydroxsys: Has developed world-

leading membrane technology for use

in a range of industrial processes from

dairy processing to mining. Recently

raised one of New Zealand’s largest seed

investment rounds.

Founded by Daryl Briggs in 2012.

Lead and key investors: Global from Day

One, Sparkbox.

• Nexus6: Has developed a range of

smart inhalers to administer medicines.

Technology includes the ability to

digitally monitor inhaler use.

Founded by Garth Sutherland in 2001.

Lead and key investors: ICE Angels.

• PolyBatics: Technology harnesses the

power of cells to create natural polymer

particles for a range of diagnostic and

therapeutic applications. Founded by

Bernd Rehm in 2005.

Lead and key investors: Manawatu

Investment Group.

• Mesynthes: Produces tissue sheets for

wound care and surgery. Has US Food

and Drug Administration clearance for

the product’s commercial launch into the

US market.

Founded by Brian Ward in 2007.

Lead and key investors: Sparkbox .

INVESTEE NEWSLONDON STOCk ExChANgE FLOAT TO FUEL ASIA-PACIFIC PUShBy European correspondent Selwyn Parker

Sweden-based private equity firm, EQT,

plans to expand its fast-food and beverage

chain SSP in the Asia-Pacific region after

floating off nearly 60 per cent of the

business on the London Stock Exchange.

Until now, SSP’s Asia-Pacific outlets

have accounted for less than 7 per cent

of group revenues of £1.8 billion but the

additional capital will enable the chain to

push deeper into a territory it has been

anxious to develop more fully for some

years (APE&VCJ, Apr 2013).

SSP manages 300 brands worldwide

and has outlets for five of these brands at

Sydney Airport.

The IPO raised over £482m before the

exercise of any over allotment options.

Bucking a downward trend on the London

market, the IPO was highly successful and

valued the chain at about £1 billion, based

largely on prospects for further growth

beyond SSP’s UK home base. The shares

were rushed in early trading; listed at 210p

they soon jumped to 222p. This enthusiasm

was seen as a vote of confidence in the

company’s growth strategy of developing

new brands while partnering with

established brands such as Burger King and

Starbucks in locations of high foot traffic

such as airports and rail stations.

According to a consensus of analysts,

the issue price of 210p suggests a forward

enterprise value ratio to earnings before

interest, tax, depreciation and amortisation

(EBITDA) on 2015 earnings of 8.4 times.

Although SSP will use some of the

proceeds of the float to reduce debt –

a current trend in European private-equity

markets – there will still be plenty of cash

available for the Asia-Pacific expansion

strategy.

NZVIF SEED CO-INVESTMENT FUND

Year to 30 June

Angel Partners Investee companies

Amount Invested ($NZm annual)

Amount Invested ($NZm cumulative)

2006 2 1 $0.2m $0.20m

2007 4 4 $0.70m $0.90m

2008 8 18 $2.54m $3.44m

2009 9 27 $3.27m $6.71m

2010 11 41 $3.26m $9.97m

2011 12 61 $4.99m $14.95m

2012 14 77 $4.38m $19.33m

2013 14 96 $5.20m $24.53m

2014 14 115 $5.40m $29.93m

NZVIF CO-INVESTMENT FUND INVESTMENT

Year Amount invested Number of deals

2006 $NZ21,366,964 30

2007 $NZ29,518,348 55

2008 $NZ32,569,403 41

2009 $NZ43,238,580 75

2010 $NZ53,109,861 112

2011 $NZ34,798,049 103

2012 $NZ29,896,789 102

2013 $NZ53,230,971 116

Total $NZ297,728,965 634

Source: Young Company Finance Index

NZ ANGEL INVESTMENT–INVESTMENT STAGES

Of $NZ297m invested by angels since 2006:•$NZ55.9m(19%)–seedstage•$NZ200.3m(67%)–start-upstage•$NZ29.3m(9.9%)–earlyexpansionstage•$NZ12m(4%)–expansionstage


Currently, SSP operates nearly 2,000

retail concessions at airports and train

stations in 29 countries. At Sydney airport

it runs Caviar House & Prunier, Itacho,

Danks Street Depot, Bambini Wine Room

and Trattoria Prego. Some of these brands

are being tested for global roll-outs. Chief

executive Kate Swann, who revived UK

high-street newspapers to stationery

chain WH Smith and only joined SSP last

year, will stay on to oversee the group’s

expansion strategy.

The success of SSP’s IPO is something

of a triumph of faith for EQT. It bought

SSP, which had been split out of FTSE

100 caterer Compass, at the height of

the leveraged buy-out boom in 2006 but

was forced to write down the value of its

94 per cent stake to zero in 2009. Rather

than walk away from the company, EQT

pumped £100 million into new brands and

outlets and has since seen its investment

recover spectacularly.

The buyout firm has now recovered all

the value of its investment and has a 40

per cent claim on underlying EBITDA of

£153 million, according to its 2013 results.

EQT recently lead a consortium which

acquired I-MED Radiology Network ,

the Wallenberg family-backed firm’s

first acquisition of an Australian-based

company (APE&VCJ, Apr 14).

NEWSNEW PARTNERShIP TO OFFER DEBT TO PRIVATE COMPANIES

Venture capital funds management firm

MH Carnegie & Co has partnered with

fixed income dealer FIIG to launch a new

business which will offer debt to private

companies.

FIIG has been arranging corporate

bonds for small cap listed companies while

MH Carnegie & Co has been involved in

seeking loan capital for its portfolio of

early stage private businesses.

MH Carnegie principal Mark Carnegie

and FIIG chief executive Mark Patton both

recognised a market gap where businesses

were deemed too risky for bank loans or

conventional corporate bonds but did

have the high growth/high risk profile that

would attract venture capital or private

equity investment targeting overall returns

in excess of 20 per cent.

This prompted them to establish the new

business, Alternate Debt Services.

Carnegie and Patton have known each

other since Carnegie was with investment

bank Carnegie Wylie and Patton was with

ANZ Banking Group.

Alternate Debt Services will structure

and arrange high yielding debt across

senior, junior and mezzanine tranches,

hybrid instruments and preferred equity.

The business will target returns of 10-20

per cent for its private investors.

Alternate Debt Services will operate

completely independently from MH

Carnegie & Co with FIIG conducting its

credit analysis.

International debt providers such as

Macquarie Bank, Babson Capital and

Intermediate Capital provide mezzanine

finance to Australian private companies

but Alternate Debt Services will offer

smaller loans than these firms typically

provide, probably in the range $20 million

to $100 million.

PERFORMANCEAUSTRALIAN MANAgERS RANkED AMONg WORLD’S BEST

Two Australian private equity fund

managers have been ranked among

managers that most consistently

outperform their peers.

Pacific Equity Partners (PEP) and

Quadrant Private Equity are among

35 buyout fund managers identified

as outperformers among 196 peers by

alternative assets research house Preqin.

The rankings have been made for Preqin’s

forthcoming Private Equity Performance

Monitor.

PEP is in equal 13th place with five funds

with quartile rankings, four in the top

quartile and an average quartile ranking of

1.4. Quadrant is in equal 19th placing with

five funds with quartile rankings, three in

the top quartile and one in the second

quartile and an average quartile ranking

of 1.6.

Both firms also made the outperformer

rankings last year.

The United States has 21 firms in the

buyout rankings, the UK three, Sweden and

Australia two each and The Netherlands,

Israel, France, Canada, South Africa and

Japan one each.

Australia does not feature in tables of

consistently performing venture capital

and fund-of-funds managers both of which

are dominated by US firms.

Preqin’s ranking system assigns a score

of one for a top quartile fund, two for a

second quartile fund and so on.

NEWSPRIVATE BANkINg BUSINESS ChANgES hANDS

Investec has sold its Australian professional

finance and asset finance and leasing

businesses to the Bank of Queensland as

part of a non-core businesses divestment

program.

The businesses made up Investec

Australia’s private banking business,

Investec Bank (Australia) Limited.

As a result of the sale, the new local

entity for the Investec Group will be

Investec Australia Limited (IAL).

Investec is now focusing on its core

specialist niches of corporate advisory,

corporate and acquisition finance, aviation

finance, resource finance, infrastructure

finance and investment, financial markets

and property.

Investec’s head of banking and financial

markets in Australia Milton Samios said

the company’s commitment to corporate,

institutional and government clients

remained unchanged but IAL was now

better positioned to offer clients access

to the larger balance sheet and global

capabilities of the broader Investec Group.

Investec has three principal markets:

South Africa, the UK and Australia. The

group also has additional offices in Asia,

Europe and the US.

NEWSDIgITAL PRODUCTS NOW AMONg NEW ZEALAND’S LEADINg ExPORTS

New Zealand’s digital economy

contributed more than $NZ2 billion in

export earnings last year making it

the country’s third biggest export earner

behind dairy and tourism, minister

for communications Amy Adams told

visitors to an Auckland conference last

month (July).


Speaking at the NetHui conference

organised by InternetNZ, Ms Adams said

she believed the most important role for

government in the ICT ecosystem was to

work on removing barriers and creating an

economic environment where IT companies

could thrive. She said international

cooperation was important for developing

New Zealand’s growing expertise in ICT

and this had been promoted by the

government’s participation in the Korea,

Australia, New Zealand Technology Summit

(KANZ), the most recent meeting of which

was also held in Auckland last month.

South Korea and Australia were ideal

markets and partners for New Zealand

ICT companies, she said. And despite

Korea being the home of some of the

world’s leading ICT companies, it was clear

Korean businesses recognised they could

not develop the full range of technology

solutions demanded by global markets.

As a result they sought partnerships with

innovative companies that had technology

or applications suitable for embedding in

their products and this created a significant

opportunity for New Zealand.

She said a number of New Zealand

companies had already capitalised on this

and entered into partnerships with Korean

businesses.

For example, Flightcell and Rakon had

become component suppliers to Korean

manufacturers and others, including

MetraWeather, RightHemispere and Vista

were supplying software.

The government, through New Zealand

Trade and Enterprise, was also working

closely with New Zealand ICT companies to

establish and grow their presence in

Australia with a focus on secure payments,

GPS systems and social media monitoring

tools.

NEW FUNDS & FUNDRAISINgWOTIF.COM FOUNDER PLANS ANgEL FUND

In the wake of Wotif.com Holdings (ASX:

WTF) accepting a $703 million bid by

US-based rival Expedia (Nasdaq: EXPE),

founder Graeme Wood has spoken of plans

to set up a new angel investment fund.

Assuming it is completed, the takeover

of Wotif.com will net Wood about

$140 million.

Andrew Brice, who co-founded the

online travel booking business with Wood

and remains a close business associate, will

receive about $100 million.

The Australian Competition and

Consumer Commission (ACCC) has begun

an enquiry into the effects of Expedia

acquiring Wotif.com.

The ACCC is looking into competition

between Expedia and Wofif.com as well

as with bricks and mortar travel agency

businesses such as Flight Centre (ASX:

FLT), Helloworld (ASX: HLO) and STA Travel.

Wood’s other business interests include

developing an eco-tourism venture at a

former Gunns paper mill at Triabunna on

Tasmania’s east coast with Kathmandu

founder Jan Cameron. The Spring Bay

Mill property was bought for about

$10 million in 2011 and concept images

were recently released.

PEOPLE MOVESNEW PARTNER FOR UPPER MID-MARkET FIRM

Quadrant Private Equity has appointed

Nick Batchelor as a partner.

Batchelor was previously a partner with

RMB Capital Partners.

Batchelor has become one of four

partners at Quadrant, the Sydney-based

upper mid-market firm. Other partners

are founder and managing director

Chris Hadley, Marcus Darville and

Justin Ryan.

George Penklis, who co-founded

Quadrant with Hadley, retired early this

year prior to Quadrant raising its $850

million seventh fund, Quadrant Private

Equity No 4 (APE&VCJ Mar 14).

INVESTMENT ACTIVITYChINESE Uk ACqUISITION COULD hAVE SIgNIFICANCE FOR AUSTRALIA By European correspondent Selwyn Parker

For China’s Hony Capital, the international

brand rights that came with its £900

million purchase of UK-based PizzaExpress

last month (July) are clearly crucial assets.

This could have implications in other

markets including Australia and New

Zealand.

In the last two years the Shanghai-

based private-equity firm has embarked

on a round of cross-border investments

that are taking it deeper into the Asia-

Pacific region as well as the UK and North

America. PizzaExpress is similarly focused

on international expansion and already has

22 outlets in mainland China. The Hony

acquisition is likely to result in the brand

being expanded to other parts of the Asia-

Pacific region, including, possibly, Australia

and New Zealand.

Under the ownership of Gondola

Holdings (an investee of European private

equity firm Cinven) PizzaExpress bought

back its international brand rights in

2010 and has since added 68 restaurants

outside the UK. In addition to mainland

China, these are in Hong Kong, Indonesia,

and India. In all, the business operates

504 outlets.

The success of the brand outside the

UK was clearly a major factor in the

high price that Hony founder and chief

executive John Zhao was prepared to

pay for PizzaExpress, given that the most

recent annual earnings before interest, tax

depreciation and amortisation (EBITDA)

figures were only £90 million, up from

£60 million when Gondola took the chain

private seven years ago. The deal was the

biggest transaction in Europe’s restaurant

business in five years.

Zhao has said Hony plans to leave the

current executive team in place and will

support their expansion plans.

Success for Hony’s debut investment in

overseas-based fast food could encourage

Chinese competitors to look to the

Australian and New Zealand fast-food

sectors for other brands to expand in Asia.

Although Chinese private equity

has yet to make an impact here, Hony –

China’s largest private equity firm

by assets with more than $US7 billion

under management – is well placed

to change this. The firm has a close

association with TPG Capital which has

an Australian office and has made a

number of large acquisitions in Australia

including the Myer department store

chain and the Ingham poultry business.

Earlier this year, Hony became the anchor

investor with TPG in a five-year, US$1billion

deal to finance, produce and self-distribute

up to ten “star-driven” movies a year

around the world.


Zhao, who has an MBA and dual

masters degrees in physics and electrical

engineering from American universities,

has led Hony in pursuing cross-border

assets and financing the expansion of

Chinese companies into new markets over

recent years.

“More and more Chinese firms we’ve

invested in are envisioning themselves as

global companies,” he has been quoted as

saying. “We will continue to finance them

and team up with them to venture into

the global market. We want to become a

bridge, through which Chinese companies

can acquire advanced technology and

brands in mature markets while foreign

companies can tap China’s huge growth

potential.”

Backed by TPG, and overseas

institutional investors such as US pension

funds CalPERS and CalSTRS as well as

Singapore sovereign wealth fund Temasek,

Hony holds stakes in foreign companies

including Japanese property investment

firm Tokai Kanko Co., Italian machinery

maker Compagnia Italiana Forme Acciaio

SpA and Singapore-listed Biosensors

International Group Ltd., a cardio-

technology researcher.

Sponsored by Chinese conglomerate

Legend Holdings Ltd., Hony started out

as a manager of US dollar funds focusing

on investing in domestic state-run firms

in construction, healthcare, finance,

retail, media and renewable energy. It

has invested in about 70 firms, including

Changsha Zoomlion Heavy Industry

Science & Technology Development Co.,

China Glass Holdings Ltd. and Simcere

Pharmaceutical Group.

Hony moved into cross-border

investments about four years ago.

INVESTMENT ACTIVITYPRIVATE EqUITY BACkINg FOR OIL AND gAS SERVICES VENTURE

Melbourne private equity firm Proserpine

Capital Partners has participated in a $50

million capital raising by West Australian

company Condor Energy Services.

Much of the rest of the capital was

provided by Hong Kong investors.

Condor was set up in 2012 to provide

oil and gas industry services for onshore

operations in Australia. The new capital

will be used to finance the purchase of

equipment.

Condor has just begun a two-year

contract with Beach Energy (ASX: BPT)

to service natural gas exploration in the

Cooper Basin area of Queensland and

South Australia.

Melbourne-based boutique corporate

advisory firm Mitchell Peterson Capital

Partners (MP Capital) advised Condor on

the raising.

Proserpine’s other investments are in:

tug and barge hire business Polaris Marine;

women’s fashion business, Meredith Clothing

Group; industrial cleaning company, Lotus

Filters; and commercial fishing business,

Corporate Alliance Enterprises.

PEOPLE MOVESPRINCIPLE ADVISORY SERVICES RECRUITS LEADINg ADVISER

Services business Emerge Media LLC.

John Brakey has joined private equity

placement firm Principle Advisory Services

as an adviser.

Brakey headed Macquarie Bank’s fund-

of-funds private equity operation for

eight years until late 2008 during which

time he oversaw substantial growth in the

operation’s funds under management.

Brakey then spent three years in an investor

relations and fundraising role as a director

of KKR Australia. In early 2012 he joined

MLC, the wealth management division of

National Australia Bank, as head of private

equity. He left that role in May last year.

NEWSVENTURE-BACkED SOFTWARE COMPANY IN IPO qUEUE

Francisco Partners’ Australian investee

company Aconex is reportedly preparing

for an IPO and ASX listing.

The San Francisco-based venture firm

paid $107 million for a minority stake in

the software business in late 2008.

Founders Leigh Jasper and Rob Phillpot

established Aconex in 2000 and remain

the largest shareholders.

Aconex provides online document

management and collaboration tools for

the construction and engineering sector.

The cloud-based software-as-a-service

(SaaS) products are available on a pay-as-

you-go basis.

Aconex claims to be the world leader in

its niche.

Macquarie and UBS are believed to be

working on preparations for the IPO.

INVESTMENT ACTIVITYSOUTh AFRICAN INVESTMENT COMPANY BUYS NEW ZEALAND RETAILER

South Africa-based investment company

Pepkor Limited has acquired New Zealand

retail chain Postie Plus Group, S&P Capital

IQ has reported.

The deal involves 64 stores throughout

New Zealand.

The value of the transaction is unknown.

Pepkor owns the Best & Less and Harris

Scarfe retail chains in Australia.

INVESTMENT ACTIVITYUS VENTURE FUNDS INVEST $3.6M IN gRAPhIC DESIgN START-UP

US venture capital managers Founders

Fund and Shasta Ventures have invested a

total of $3.6 million in online do-it-yourself

graphic design start-up Canva.

Canva raised $3 million in March 2013

(APE&VCJ, April 13) in a round which

included venture capital firms Square Peg

Capital and Blackbird Ventures, in Australia,

and Matrix Partners, InterWest Partners

and 500 Startups, in the US, as well as

prominent angel investors in both countries.

Sydney-based Canva operates a free

service which now has 600,000 users

around the world. Revenue is generated by

charging $1 a time for the use of images

which it licenses for distribution at lower rates.

The company recently introduced a

‘design’ button which enables its platform

to be easily integrated into websites.

The new funding is to be used to expand

Canva’s team of 26.

NEWS$NZ1M PLUS gOVERNMENT FUNDINg FOR ThREE INCUBATORS

The New Zealand government has

announced funding of just over $NZ1


million for three technology-focused

incubators.

The incubators are:

• Creative HQ (Wellington),

• Canterbury Development Corporation

(Christchurch)

• The Icehouse (Auckland).

All three operate under the Lightning

Lab brand.

The investment is part of the Ministry of

Business, Innovation and Employment’s

Accelerator Programme pilot which is

designed to support the rapid formation

of early stage ICT and digital technology

start-ups.

Programmes are typically run over three

months and are intended to make start-up

companies investment ready.

Minister for science and innovation

Steven Joyce said: “The role of the

government’s Business Growth Agenda

(BGA) now is to help turn one or two

years of good growth into a sustained

lift in our economic performance.

Encouraging the development of more

new ICT and hi-tech companies is a

crucial part of the innovation stream

of the BGA.

“The Accelerator Programme helps

foster faster economic growth by assisting

entrepreneurs to develop innovative

companies that will drive New Zealand’s

economy into the future.

“The Accelerator Programme will result

in New Zealand developing more high

growth, globally ready ICT businesses; a

larger group of innovative entrepreneurs

who can drive these projects; and more

private sector investment into start-up

businesses,” Joyce said.

The Accelerator Programme

complements a wider focused Incubator

Support Programme administered by

government-funded Callaghan Innovation.

INVESTMENT ACTIVITYCREATIVE FUND INVESTS IN ‘NExT gENERATION’ FAShION BUSINESS

QUT Creative Enterprise Australia’s

Creative Enterprise Fund has invested in

a business which it describes as “a next

generation online fashion retailer”.

The size of the investment in Fame &

Partners has not been specified but the

fund is mandated to make $25,000 to

$150,000 investments.

According to Creative Enterprise

Australia, the start-up is tapping into the

$6 billion global formal and prom dress

market.

Creative Enterprise Australia chief

executive Anna Rooke said Fame &

Partners was an innovative Australian

fashion technology venture driven by

a talented team who were targeting a

growing global market.

Rooke said digital disruption was

affecting many markets including fashion.

The fashion industry was undergoing

significant change with new brands

targeting niche client verticals as well as

moving from conventional retailing to

online sales.

She said Fame & Partners had spotted

a great opportunity in a high transaction-

spend niche market and was using


customised manufacture and digital

technology to provide a distinctly different

offering for the formal wear market.

Fame & Partners founder and chief

executive Nyree Corby said the formal

wear market had developed from bridal

ranges offered through small retailers.

These shops were, however, unable to

regularly refresh stock. As a result they

were unable to keep up to date with

fashion trends which were now largely

driven by social media.

Corby said she had noticed a clear

disconnect between favourite frocks blogs

and social posts shared by young women

and the special event wear available in

retail stores.

Recognising an opportunity, she had

started offering made-to-order formal

dresses, marketed, ordered and shipped

online.

“We’ve experienced strong sales in

Australia since start up so we recently

opened up our offering to the lucrative US

prom dress market,” she said. “Within four

months our US sales are already close to

exceeding Australian revenue.”

Corby said online data complemented

the creative side of fashion design. Fame &

Partners had recently developed a fashion

forecasting trend tracking algorithm

to keep their designers “ahead of the

curve”. And a “twin alert” feature ensured

customers could avoid finding someone

else was wearing the same Fame & Partners

dress when they attended at an event.

Creative Enterprise Australia is an artistic

enterprises incubator based at the

Queensland University of Technology (QUT).

INVESTEE NEWSSTART-UP PARTNERS WITh LEADINg VACCINE PRODUCER

Sydney biotechnology start-up NeuClone

has entered into a worldwide partnership

with Serum Institute of India Ltd to

produce biosimilar drugs.

Biosimilar drugs are biological products

designed to mimic the effect of existing

drugs.

Serum Institute, which is based in the

Indian city of Pune, is the world’s largest

vaccine producer. The company will use its

resources to assist NeuClone to develop a

range of 10 biosimilar monoclonal antibody

drugs for treatment of diseases such

as cancer and autoimmune disorders.

Serum Institute will then have the

right to manufacture and supply the

drugs in India, China, South-East Asia,

the Middle East, South America Africa

and other markets. NeuClone will

retain licence for US, Europe, Canada,

Australia, Taiwan, Japan and South Korea.

The company is seeking distribution

partnerships with large pharmaceuticals

for these markets.

NeuClone founder and chief executive

Noelle Sunstrom said the partnership with

Serum Institute would leverage NeuClone’s

patented technology to generate protein

drugs at greatly reduced cost than if the

start-up continued development on its

own. The joint development project is

expected to take about eight years.

NeuClone, which operates from

Australian Technology Park in Sydney,

was established in 2007 and is majority

owned by its founder. The company has

more recently received investment from

private investors including all members

of its board. The company has received

grant funding from the NSW and federal

governments including $1 million from

Commercialisation Australia.

Commercialisation Australia was

abolished in this year’s federal budget.

NEWSTECh COMPANY BOSS TO SPEAk AT AWARDS EVENT

Tim Power, managing director of recently

floated 3P Learning (ASX: TPN), will be

keynote speaker at this year’s Australian

Growth Company Awards event.

The awards will be presented in Sydney

on 16 October.

Nominations for the awards close on 15

September.

For more information visit: www.sparke.

com.au/growthawards

PEOPLE MOVESThREE PROMOTED AS MAjOR FUNDRAISINg PROgRESSES

David Brown, Geoff Hutchinson and Jake

Haines have been promoted to managing

directors at Pacific Equity Partners (PEP).

Brown joined PEP in 2004. Prior to

that he was an analyst in the investment

banking division of JP Morgan.

Hutchinson joined the firm in 2008.

Prior to that he was a manager at Bain &

Company.

Haines originally joined PEP in 2002 after

working as a Bain & Company consultant in

Toronto. He left PEP in 2005 to work in the

US where he was involved in establishing

the US private equity group for Babcock &

Brown. Haines rejoined PEP in 2008.

PEP has not announced a first close but

the firm is believed to have commitments

of more than $1 billion for its fifth private

equity fund. The firm announced it was

raising the new fund in March 2013.

PEP is believed to be seeking about

$2 billion in core investment capital plus

co-investment commitments of $1 billion

to $1.5 billion.

PEP IV, which closed in 2008, was

the largest private equity fund raised in

Australia to date with $2.7 billion in core

investment capital plus $1.3 billion in

co-investment commitments.

Reaching the lower target for the

new fund will maintain PEP’s position

as the only Australian private equity firm

with the capacity to make solo bids for

businesses with enterprise values around

$1 billion.

NEW FUNDS & FUNDRAISINgWIND FARM TRUST TARgETS 10.5 PER CENT RETURN

Impact Investment Group (IIG), an impact

investment fund manager and co-investor,

is raising $3.08 million for a trust that

will partly fund a wind farm at under

construction near Ballarat, Victoria.

Development of the three-turbine

Chepstowe Wind Farm is expected to cost

a total of $16.3 million.

The wind farm is expected to generate

enough power for 3,400 homes. Hydro

Tasmania has agreed to a 10 year power

purchase agreement for all the energy to

be generated.

IIG is owned by Small Giants, the family

office of Daniel Almagor and Berry

Liberman along with the fund’s chief

executive Chris Lock.

Most of IIG’s offer has already been taken

up. The remainder is open to wholesale


INVESTMENT OPPORTUNITY

ONLINE BUSINESS - GLOBAL APPLICATION

Opportunity for tech-smart operator at minimal cost to run

business for two years, expanding consumer base through social

media and other marketing, view global license at end of term.

Please respond by email: [email protected]

and sophisticated investors at minimum

investments of $100,000.

The IIG Wind Trust is forecast to deliver

an annual blended internal rate of return

(IRR) of 10.5 per cent net.

The project is being developed by

Future Energy which project managed

development of Hepburn Wind, a

community-owned wind farm which has

been operating since 2011.

INVESTEE NEWSCORRECTION: MEO AUSTRALIA

An item in the July issue of APE&VCJ

under the heading “ASX queries sudden

price rise” described MEO Australia (ASX:

MEO) as a “CHAMP Private Equity investee.

MEO is not and has never been a

CHAMP investee. The item confused MEO

Australia with CHAMP investee Miclyn

Express Offshore which was delisted from

the ASX on 18 December.

INFORMAL VENTURE CAPITALUS VENTURE CAPITALIST INVESTS IN MELBOURNE START-UP

Online self-publishing start-up Tablo

has raised $400,000 in seed capital from

Y Combinator partner Kevin Hale and

former Catch Group chief executive Paul

Reining.

Y Combinator is a California-based seed

stage venture fund manager.

The tablo.com.au website enables

writers to create stylish books chapter by

chapter, opening up their work to readers

as they write.

Tablo founder Ash Davies said: “As

a blogger I was so used to being able

to type something and click a publish

button. I wanted to change this and give

emerging authors a place where they

can easily create, share and connect with

readers. Publishing a book with Tablo is as

easy as publishing a blog and, when you

finish writing, you’ll have an established

readership.”

Twenty-one-year-old Davies says the

Melbourne-based Tablo service is already

used by 10,000 authors in about 100

countries.

Tablo was a 2013 graduate of Melbourne

incubator Angel Cube.

NEWSONLINE BUSINESS MAkES ACqUISITION

Task outsourcing online business Airtasker

has acquired similar Melbourne business

Occasional Butler.

Occasional Butler’s co-founders, Erz

and Jodie Imam have joined the Sydney

business as community development

advisers.

Airtasker co-founder and chief executive

Tim Fung said Occasional Butler had

gained traction in some of the company’s

key task areas and had built a strong

community in Melbourne across businesses

and individuals.

The acquisition of Occasional Butler for

an undisclosed sum follows the acquisition

of Taskbox in February.

Airtasker claims about 130,000

community members across Australia and

has plans to expand offshore.

NEWSChINESE INTEREST IN DAIRYINg BUSINESS

After almost two years in an investment

tender process, Australia’s oldest farming

company, The Van Diemen’s Land

Company, may be close to a sale.

Renewed interest in the dairying sector

is believed to have attracted new parties to

express interest in acquiring the company

which operates 25 dairy farms in north-

west Tasmania. At least one Chinese

investor is believed to be among the

interested parties.

The Van Diemen’s Land Company is 98

per cent owned by the New Plymouth

District Council in New Zealand and

represents a large part of the council’s

investment portfolio. The council wants to

divest the investment so it can diversify its

portfolio. The council made the investment

about six years ago. Although the

investment is believed to have performed

well in earlier years, The Van Diemen’s

Land Company posted a loss last year. The

company has, however, greatly increased

production volumes in recent years.

The Van Diemen’s Land Company has

Tasmanian state government approval

to increase the area of land it uses for

dairying but federal environmental

approval is also required and is yet to

be granted.

CONFERENCE & ROUNDTABLESAVCAL ALPhA SPEAkERS CONFIRMED

Future Fund managing director David

Neal and Hoyts chairman David Kirk, have

been confirmed as speakers at this year’s

AVCAL alpha conference.

Other speakers will include former

SAS soldier Ben Roberts-Smith, VC, and

Paul Bassat of Square Peg Ventures and

formerly SEEK.com.

Roberts-Smith, who was awarded the

Victoria Cross for his actions during a

helicopter assault in Afghanistan, will talk

on “Courage under fire”.

Bassat will answer questions from

moderator Ali Moore in a session entitled

“SEEK and you will find”.

Previously announced speakers include

Dr Charles Dallara of Partners Group

and AFL legend Kevin Sheedy, who will

be interviewed by Moore on the subject:

“Building a team from the ground up”.

AV CAL alpha is to be held in Melbourne

for the first time, September 3-4.

For details visit: www.avcal.com.au/

events/event/avcalalphaconference2014

FEATURE


As outlined in an earlier article

(APE&VCJ, Jun 14), data analysis

supports the view that in Australia

and New Zealand the mid-market offers

by far the largest number of businesses

suitable for private equity investment.

But how do these potential targets stack

up when filtered further for likely positive

response?

APE&VCJ asked Bureau van Dijk

(BvD)* to use its Orbis database to

examine private companies and tease out

potential candidates for succession capital

investment.

Refining our parameters increased the

base sample of private companies with

annual revenues of $10 million plus from

8,042 in the previous research to 11,580.

We also changed the values from the $US

used as standard in international Orbis

databases to $A.

The turnovers of most of these

companies are estimates modelled through

quantified peer and industry analysis

as less than 1 per cent of Australia and

New Zealand’s 11.3 million active private

companies are required to report their

annual financial performance to ASIC or the

New Zealand Companies Office.

The search criteria sought private

companies with managers or directors

aged 55 or older who were also majority

shareholders. While these criteria will not

specifically identify companies where

succession is still to be determined they

serve as a pointer to companies warranting

further research.

Using these criteria, the database

identified a total of 1,041 companies.

These were split into turnover bands

of over $10 million to $50 million, over $50

million to $100 million, over $100 million to

$500 million and more than $500 million.

As would be expected, the first band

included the largest number of companies

– 788 – but the second band also included

a substantial number – 178. Predictably, the

number of companies turning over more

than $500 million that appeared to be

potential succession capital opportunities

was small but seven were identified.

Sorting the over $10 million to $50 million

first band by the Orbis ‘Major Sectors’ index

identified the largest number of businesses

– 256 – as ‘Other services’. This category is

made up of businesses which do not fit into

Orbis categories and, significantly, includes

all high technology-based businesses.

Orbis data can be interrogated using

ANZSIC codes and we tried this but as

it produced more than 100 sub-industry

classifications we reverted to the Major

Sectors index to define categories for this

article.

A total of 52 businesses were not able

to be classified as they had not nominated

ANZSIC codes.

Using the Major Sectors index, in that

first band Other services was followed

by Wholesale and retail trade, 191;

Construction, 91; Machinery, equipment,

furniture, recycling, 54; Primary sector, 27;

and Chemicals, rubber, plastics, non-metallic

products, 24.

Wholesale and retail trade was also well

represented in the larger turnover brackets

but Construction, Primary sector and

Chemicals, rubber, plastics, non-metallic

products were each less prominent.

Sorting the sample by incorporation

date reflected the baby boomer bulge

and indicated that many founders are now

around retiring age (although, of course,

it did not show which founders remained

in control). This showed that 199 of the

sample businesses were established prior

DATA ANALYSIS POINTS TO SUCCESSION DEALS

BY ADRIAN HERBERT

DATA ANALYSIS CAN HELP

IDENTIFY THE SUCCESSION

CAPITAL OPPORTUNITES

SOUGHT BY MANY PRIVATE

EQUITY FIRMS. OUR TEST

IDENTIFIED NUMEROUS

POTENTIAL TARGETS.

FEATURE


to 1975, 1,474 were established in the period

1975-1999 and only 732 from 2000 to the

present. (Remember the criteria were

intentionally set to identify businesses

owned by people now aged over 55 so

this indicates only that this age group

have been less active in establishing new

businesses in recent years.)

Going into more detail over that bulge

period, 52 of the identified companies were

incorporated from 1975 to 1979; 88 from

1980 to 1984; 150 from 1985 to 1989; 126

from 1990-1994 and 194 from 1995 to 1999.

Sorting the target sample by operating

revenue provided an interesting top 20.

While the top half-dozen or so were well

known businesses, or entities controlled by

well known business people, the remainder

were less familiar. Even after excluding

business sectors that are generally

avoided by private equity – such as motor

dealerships and construction companies

– a substantial number of interesting

businesses remained.

These included a couple of beef

processing businesses and an aluminium

window manufacturer, each of which turn

over more than $300 million a year.

Businesses turning over more than

$100 million a year included a building

components manufacturer, a primary

produce transport and trading business,

and a pie making company.

Businesses with turnovers in excess

of $70 million were in: primary products

trading; audio visual and computer

equipment retailing; health and beauty

products manufacturing, distributing and

retailing; chemicals distribution; contract

filling of aerosol and liquid products,

contract mining; DVD and CD replication

and distribution, advertising, hardware

retailing; building products wholesaling;

hotel and night club operations; steel

supplies; fruit and vegetable processing.

Interestingly, these businesses are spread

right across Australia and New Zealand

rather than being concentrated in major

cities.

*BvD provides company information

and business intelligence, particularly on

private companies, across many markets

internationally as well as Australia and New

Zealand.

Reference year : Last avail. yr Figures refer to : Number of companies

Operating revenue (th AUD)

Industry (BvD major sectors) From 10,001

to 50,000

From 50,001

to 100,000

From 100,001

to 500,000

More than

500,001

n.a. All

01. Primary sector 27 1 1 0 0 29

02. Food, beverages, tobacco 12 3 3 0 0 18

03. Textiles, wearing apparel, leather 7 3 2 0 0 12

04. Wood, cork, paper 2 0 0 0 0 2

05. Publishing, printing 7 1 1 0 0 9

06. Chemicals, rubber, plastics, non-metallic

products

24 2 1 0 0 27

07. Metals & metal products 16 1 0 0 0 17

08. Machinery, equipment, furniture, recycling 54 9 3 1 0 67

09. Gas, Water, Electricity 1 0 0 0 0 1

10. Construction 91 5 8 1 0 105

11. Wholesale & retail trade 191 16 18 3 0 228

12. Hotels & restaurants 6 1 0 0 0 7

13. Transport 15 1 7 0 0 23

14. Post & telecommunications 2 0 2 0 0 4

15. Banks 12 2 0 0 0 14

16. Insurance companies 1 0 0 0 0 1

17. Other services 256 34 9 1 0 300

18. Public administration & defence 1 0 0 0 0 1

19. Education, Health 11 94 0 0 0 105

n.a. 52 5 13 1 0 71

All 788 178 68 7 0 1,041

FEATURE


Figures refer to : Number of companies

Date of incorporation

Industry (BvD major

sectors)

From

1900 to

1949

From

1950 to

1974

From

1975 to

1979

From

1980 to

1984

From

1985 to

1989

From

1990 to

1994

From

1995 to

1999

From

2000

n.a. All

01. Primary sector 0 3 0 4 6 3 4 9 0 29

02. Food, beverages,

tobacco2 4 0 3 2 3 2 2 0 18

03. Textiles, wearing

apparel, leather0 2 2 2 2 2 3 0 0 13

04. Wood, cork,

paper0 0 0 0 1 1 0 0 0 2

05. Publishing,

printing0 0 0 0 4 1 3 1 0 9

06. Chemicals,

rubber, plastics, non-

metallic products

0 1 4 2 4 3 5 9 0 28

07. Metals & metal

products0 4 0 1 4 0 6 2 0 17

08. Machinery,

equipment, furniture,

recycling

1 7 6 10 6 10 8 19 0 67

09. Gas, Water,

Electricity0 0 0 0 1 0 0 0 0 1

10. Construction 0 2 7 9 9 14 21 41 0 103

11. Wholesale & retail

trade4 28 13 22 39 37 33 52 0 228

12. Hotels &

restaurants0 1 0 0 2 1 2 1 0 7

13. Transport 1 5 4 1 4 0 8 2 0 25

14. Post &

telecommunications0 0 0 0 0 0 1 3 0 4

15. Banks 0 0 0 0 2 1 3 8 0 14

16. Insurance

companies0 0 0 0 0 1 0 0 0 1

17. Other services 1 25 13 26 42 34 59 98 0 298

18. Public

administration &

defence

0 0 0 0 0 0 1 0 0 1

19. Education, Health 0 2 2 1 13 9 25 51 0 103

n.a. 0 3 1 7 9 6 10 35 0 71

All 9 87 52 88 150 126 194 333 0 1,039


REARVIEW MIRROR

5 YEARS AgO... AUgUST 2009INVESTORS DRIVINg MANAgERS’ FEES DOWN

The balance of power in private equity

is swinging away from managers toward

investors and forcing fees down. Key

industry figures, including some fund

managers, accept that the conventional

private equity manager fee structure of a 2

per cent management fee and 20 per cent

share of profits above a predetermined

hurdle is no longer sustainable.

No managers have stated this publicly

but some privately concede that the

ground rules have changed for structuring

new funds. Investors are adamant that they

expect conventional fund structures to be

revised in their favour.

Recent research by UK-based alternative

assets sector research company Preqin

confirms that this is part of a global trend.

Preqin found:

• 43 per cent of investors recognised a

shift toward limited partners (LPs) in the

negotiation of terms and conditions

• 90 per cent of placement agents were

advising their clients to press for terms

to be changed in favour of LPs

• The mean management fee for buyout

funds currently seeking investment had

dropped by 20 basis points compared

with the most recently closed funds

• The mean management fee for the

most recently closed venture funds had

dropped by 15 basis points

• Managers of the largest funds were

cutting fees by the largest amounts

• LPs were receiving larger shares in

rebated transaction fees

• More funds were including key man and

“no-fault divorce” clauses in contracts.

The results of the Preqin survey show

clearly that investors are becoming

increasingly concerned about terms

and conditions. Placement agents are

advising their investor clients to press

for proposed fee structures to be altered in

their favour and the private equity

fund managers, general partners (GPs),

are listening.

Responses to the Preqin survey show

that the newest funds – both recently

launched and those that have been in the

market for some time – are offering lower

fees. Resulting from investor pressure,

new funds are also more likely to include

important governance statutes such as

key-man and “no-fault divorce” clauses in

contracts.

Tim Friedman of Preqin said the findings

of the survey made it clear that GPs should

carefully consider how they structure

new offerings in the light of changed

expectations if they want to ensure they

attract interest in the current market.

Locally, managing director of placement

agent Principle Advisory, Les Fallick, said

power had already shifted decisively in

favour of investors in Australia.

10 YEARS AgO... AUgUST 2004AUSTRALIA AND NZ IN SIghTS FOR ASIAN FUND-OF-FUNDS

Hong Kong-based fund-of-funds manager

Emerald Hill Capital Partners anticipates

investing in Australian and New Zealand

private equity funds in its recently closed

Emerald Hill Capital Partners II, LP fund.

The fund achieved its US$300

million target with strong backing from

endowments, foundations, pension funds,

insurance companies and family offices in

the US and Europe.

Emerald Hill now has more than US$500

million in assets under management.

Emerald Hill managing director Eugene

Choung said he expected the new fund

to be invested in private equity funds

with a bias toward emerging markets but

Australia and New Zealand would also be

prominent in the investment strategy.

He said five or six Australia and New

Zealand funds were on an investment

shortlist.

“We tend to favour smaller funds that

focus on the small to middle market space

and tend to favour teams with strong

operating experience, who have a good

track record of driving outsize returns

through specific hands-on, value-add

capabilities,” he added.

Three partners in Emerald Hill worked

for endowment bodies in the US before

setting up Emerald Hill five years ago.

About 70 per cent of commitments to date

have come from this sector but the firm is

seeking to widen its investor base.

Mr Choung said he would be interested

in opening dialogues with Australia

and New Zealand limited partners in

coming years and looked forward to

familiarising them with Emerald Hill’s

investment strategy.

Prior to the establishment of Emerald

Hill, Mr Choung was director of private

equity for the University of Chicago

Endowment.

20 YEARS AgO... AUgUST 1994FULCRUM CAPITAL SEEkINg LIqUIDITY FOR INVESTORS

Fulcrum Capital Corporation Ltd is

considering ways to improve liquidity for

its investors, including the possibility of

winding up the company.

Tim Downing, a director of Sphere

Capital Advisers Ltd, Fulcrum Capital’s

manager, said the issue of liquidity has

been on the agenda for some time and all

options have been considered.

Fulcrum Capital is an unlisted public

company. However, the possibility of a

listing was not chosen due to the falling


REARVIEW MIRROR

* To access all editions of Australian Private Equity & Venture Capital Journal since July 1992, convert to our Archive Subscription. Short term – 30 day – Archive Subscriptions are also available.

away of the stock market recently and the

history of investment companies trading at

below net asset backing.

Mr Downing said the requirement for

liquidity is based on the nature of Fulcrum’s

shareholders with a mix of institutions,

corporates and individuals.

Fulcrum Capital has 35 shareholders

including State Super with 29 per cent,

Kanji Ltd with 14 per cent, ASC 7.5 per cent,

and Malcolm Turnbull 5 per cent. Sphere

Capital Advisers also has a holding.

Mr Downing denied a July 21 report in

The Australian that GPG Group held 22 per

cent of the company. He said GPG had no

shares in Fulcrum Capital.

He also said that any change at Fulcrum

Capital will not affect Fulcrum Two

Management Buyout Trust.

Progen

Fulcrum Capital is involved in the float of

Progen Industries in which it first invested

12 months ago. Progen is raising $30 million

with the issue of 25 per cent of its capital.

Following the issue Fulcrum will hold 5.01

per cent of the equity.

Mr Downing said Fulcrum has confidence

in Progen and will remain a shareholder.

Progen has the commercial rights to two

anti-cancer drugs and the new capital will

fund further development and clinical trials.

Mr Downing said that there are

enormous opportunities in this aspect of

biotechnology.

However, Progen also has a functioning

cashflow business based on a facility in

Brisbane which manufactures proteins

and enzymes for sale to the international

market, particularly the US. The facility is

the only one of its type in Australia.

Progen’s product is sold via a distribution

arrangement with the multinational, Pearce

Chemical, a part of Pearce Corporation.

The largest shareholder in Progen is

Mulgara Pty Ltd, which is partly owned by

Jamison Equity Ltd.

Sam Kaplan from Lang Corporation,

Jamison’s manager, is on the Progen board.

TNq

Fulcrum Capital has withdrawn its 21

per cent holding in Telecasters North

Queensland (TNQ) from the market,

despite announcing its availability only two

months.

Mr Downing said several serious

expressions of interest were received, but

it has now been decided that a sale is

not in the best interest of shareholders.

In part this is due to the recent fall in the

stock market and the removal of previous

blockages to the reconstruction of TNQ

and the TEN Network, in which TNQ holds

40 per cent.

Mr Downing said there are a number of

options to remove TNQ’s breach of the

Australian Broadcasting Act’s 75 per cent

audience reach limit. TNQ currently has a

reach of 78 per cent.

The December 1994 float of the TEN

Network has been postponed by one year.

A reconstruction of the Network may

involve a likely return of capital in some

form.


COMING EVENTS

27 AUGUST

NZVCA TECHNICAL WORkSHOP –

INSIDE THE PRIVATE EQUITY DEAL.

Auckland. NZVCA.

www.nzvca.co.nz

27 AUGUST

HEALTHCARE FORUM

Keynote speaker: Michael Walsh, Chief

Executive eHealth NSW. Sydney. AIIA.

www.aiia.com.au/events

29 AUGUST

IAWARDS 2014 GALA DINNER.

Melbourne. MCI Australia.

www.iawards.com.au

2 SEPTEMBER

SYDSTART.

Sydney. The Start Society.

sydstart.com

3-4 SEPTEMBER

AVCAL ALPHA.

Melbourne. AVCAL.

www.avcal.com.au

8 SEPTEMBER

ACCOUNTING FOR TURNAROUND.

CTPA Course through the University of

Technology, Sydney.

Sydney. Turnaround Management

Association of Australia.

www.turnaround.org.au/whats-on.php

17 SEPTEMBER

PE 101.

Western Australia. AVCAL.

www.avcal.com.au

17-19 SEPTEMBER

TMA 2014 NATIONAL CONFERENCE

& GALA DINNER.

Sydney. Turnaround Management

Association of Australia.

www.turnaround.org.au/whats-on.php

2 OCTOBER

PE 101.

Queensland. AVCAL.

www.avcal.com.au

16 OCTOBER

GROWTH COMPANY AWARDS

PRESENTATION.

Sydney. Australian Growth Company

Awards.

www.sparke.com.au

23 OCTOBER

TECH23.

Sydney. Slattery IT.

www.slatteryit.com.au

23 OCTOBER

NZVCA ANNUAL PRIVATE

EQUITY & VENTURE CAPITAL

CONFERENCE 2014.

Queenstown. NZVCA

www.nzvca.co.nz

30-31 OCTOBER

WEB DIRECTIONS 2014.

Sydney. Web Directions.

www.webdirections.org

4-5 DECEMBER

YOW! CONFERENCE (SOFTWARE

DEVELOPER EVENT).

Melbourne. Slattery IT.


8-9 DECEMBER


DEVELOPER EVENT).

Brisbane. Slattery IT.


11-12 DECEMBER


DEVELOPER EVENT).

Sydney. Slattery IT.



ShARE ChART

LAST SALE AT END OF MONTh AUSTRALIAN LISTED PRIVATE EqUITY FUNDS/ INVESTMENT COMPANIES

INVESTORS/ MONTH Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13

PRIVATE EqUITY & VENTURE CAPITAL FUNDS/ INVESTORS

A1 Investments & Resources (ASx: AYI) 0.001 0.001 0.001 0.001 0.001 0.001 0.001 0.001 0.001 0.002 0.003 0.002

Acrux (ASx: ACR) 1.835 1.005 0.870 1.035 1.72 2.100 2.350 2.22 2.510 2.680 3.300 3.320

Arowana International Ltd (ASx: AWN) 0.915 0.902 0.900 0.890 0.785 0.600 0.450 0.48 0.540 0.480

Authorised Investment Fund (ASx: AIY) 0.028 0.025 0.020 0.026 0.026 0.029 0.029 0.026 0.026 0.033 0.040 0.036

Biotech Capital (ASx: BTC) 0.026 0.025 0.020 0.023 0.025 0.021 0.018 0.025 0.025 0.024 0.022 0.025

Billabong International (ASx: BBg) (Centrebridge Partners/ Oaktree Capital)

0.535 0.500 0.485

Blue Sky Alternatives Access Fund (ASx: BAF)

0.990 0.990

Blue Sky Alternative Investments (ASx: BLA)

2.91 2.950 2.500 2.340 2.400 2.090 2.190 1.610 1.930 1.450 1.390 1.550

BPh Energy Ltd (ASx: BPh) 0.009 0.008 0.009 0.008 0.010 0.012 0.011 0.013 0.013 0.013 0.013 0.015

Bravura (ASx: BVA) (Ironbridge Capital)

delisted

delisted

delisted

delisted

delisted

delisted

delisted

delisted

delisted

delisted 0.275 0.275

Burson group (ASx: BAP) (quadrant Private Equity)

2.24 2.120 1.940

Chandler Macleod (ASx: CMV) (Lazard Australia Private Equity)

0.330 0.330 0.335 0.415 0.415 0.410 0.415 0.425 0.505 0.475 0.455 0.510

ClearView Wealth (ASx: CVW) (Crescent Capital)

0.800 0.800 0.820 0.760 0.735 0.700 0.660 0.610 0.605 0.655 0.590 0.615

CoverMore group (ASx: CVO) (Crescent Capital)

1.825 1.885 2.380

CVC Limited (ASx: CVC) 1.490 1.420 1.250 1.180 1.230 1.180 1.200 1.180 1.200 1.100 1.115 1.060

Dick Smith holdings (ASx: DSh) (Anchorage Capital)

2.020 1.960 2.150

Disruptive Investment group (ASx: DVI) 0.010 0.014 0.016 0.190 0.250

Energy Developments (ASx: ENE) (Pacific Equity Partners)

5.000 5.190 5.060 5.200 5.160 5.500

grandbridge (ASx: gBA) 0.044 0.033 0.060 0.060 0.064 0.064 0.045 0.045 0.045 0.040 0.050 0.042

greencross (ASx: gxL) (TPg) 10.400 9.240

healthscope (ASx: hSO) (Carlyle group/ TPg Capital)

2.260

Invigor group (ASx: IVO) 0.100 0.035 0.040 0.040 0.053 0.020 0.040 0.020 0.020 0.025 0.030 0.032

iSonea (ASx: ISN) (Bioscience Managers/ Triton Inc)

0.210 0.235 0.180 0.180 0.210 0.280 0.320

Lion Selection group (ASx: LSx) 0.350 0.300 0.400 0.455 0.050 0.510 0.530 0.525 0.530 0.550 0.590 0.535

Mantra group (ASx: MTR) (CVC Asia-Pacific UBS)

1.960 1.800

Monash IVF group (ASx: MVF) (Ironbridge Capital)

1.745 1.765

NSx Limited (ASx: NSx) 0.100 0.100 0.115 0.170 0.170 0.170 0.110 0.140 0.150 0.135 0.150 0.110

Oceania Capital Partners (ASx: OCP) 1.500 1.370 1.450 1.460 1.500 1.500 1.600 1.600 1.590 1.600 1.600 1.600

Continued ➤


ShARE ChART

Pioneer Credit (ASx: PNC) (Banksia Capital)

1.560 1.580

qRx Pharma (ASx: qRx) (Uniseed) 0.750 0.080 0.095 0.094 0.770 0.860

q Technology group (ASx: qTg) (helmsman Capital)

0.031 0.028 0.021 0.015 0.020 0.017 0.020 0.021 0.018 0.020 0.020 0.012

Spotless group (ASx: SPO) (Pacific Equity Partners)

1.850 1.650 1.820

Techniche Limited (ASx: TCN) 0.088 0.770 0.064 0.650 0.070 0.094 0.070 0.670 0.069 0.081 0.070 0.046

Transpacific Industries (ASx: TPI) (Warburg Pincus, exited 2 Nov 2013)

exited exited exited exited exited exited exited exited exited 1.145 0.980 0.960

Veda group (ASx: VED) (Pacific Equity Partners)

2.100 1.980 2.270

xero (ASx: xRO) (Valar Ventures/ Matrix Capital)

23.270 24.110 30.000 28.980 36.88 37.360 38.050 29.620 30.900 24.120 16.860 13.850

FUNDS OF FUNDS

IPE Limited (ASx: IPE) 0.445 0.495 0.480 0.460 0.465 0.440 0.440 0.435 0.440 0.460 0.440 0.42

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