$ 27 billion in dry powder to generate business
The average deal size, however, grew over the year: Bain’s $ 3.5 billion recapitalization of Virgin Australia was the largest buyout of the year, when Bain provided both debt and equity.
“The number one challenge is evaluation; the sellers’ expectations and the price they have to meet to make a deal, ”El-Ansary said.
Venture capital had a strong fundraising year with $ 1.3 billion in guaranteed commitments in 2020, double the amount in 2019.
But venture capital funds increasingly choose to deploy capital in subsequent funding cycles. Series C investments increased from 8% to 20% of fund investments, while end-stage investments accounted for over two-thirds of venture capital transactions by value.
VC revolves around finance
There has also been a noticeable change in the sectors targeted by venture capital. Although information technology has accounted for 51 percent of total transactions and 41 percent of total transaction value over the past 10 years, its dominance as an industry of choice is threatened by financial services and retailers. insurance-related start-ups.
The two sectors attracted a roughly equal share of the value of venture capital transactions, at around 37 percent.
The attraction of so-called permanent capital is a global trend, the results show, attracting more private capital to financial services and insurance companies.
In particular, the insurance sector is a strategic source of investment because the private buyer and the target are likely to benefit from any transaction.
“Managers can dramatically increase their financial power in the market by investing a portion of the insurance company’s investments, while insurance companies or pension funds benefit from the manager’s specialized expertise at a time when they do. generally seek to increase their exposure to the private sector. stocks and other private equity asset classes, ”the report states.
The idea of buying insurance companies to gain access to pools of standing capital was key to Warren Buffett’s success, as it gave him access to a float that he used to make long-term investments. .
Private equity firms are also reaping the benefits of the Hayne Royal Commission as banks cede their financial advisory and retirement businesses.
KKR, for example, has made several investments in the space, including the purchase of 55% of Colonial First State in 2020.
“Private capital can play an important transformational role in sectors undergoing structural change,” said Mr. El-Ansary. “What you see in the data reflects change and the role of innovation.”
The report says Australia-focused private funds are attracting capital due to the stable economic and political environment and increased confidence given the strong fiscal and monetary response following the outbreak of the COVID-19 pandemic.
The other reason was the relatively high returns from investing in Australian assets. The internal rate of return for Australian funds with vintages from 2011 to 2018 was 13.3%.
While this percentage is lower than the 13.5% achieved by Asian-focused funds, the report says Australian funds had the lowest risk, measured by the median standard deviation of returns at 10.4%. .
“Taken together, the investment case is clear for global allocators who are struggling to identify both diversification and improved returns in a chronic low-return environment for their rapidly expanding portfolios,” the report says.