Private equity returns outperformed those of the ASX 200 in FY21, new analysis shows, as major deals in tech and media drove a market rebound

Private equity returns outperformed those of the ASX 200 in FY21, new analysis shows, as major deals in tech and media drove a market rebound
Private equity returns outperformed those of the ASX 200 in FY21, new analysis shows, as major deals in tech and media drove a market rebound. Photo: Getty Images
  • Private equity funds enjoyed a major rebound through FY21, with returns outperforming the ASX 200.
  • Most of the rebound was driven by major deals in tech, media and telecommunications, as the global market shifted online.
  • Sebastian Stevens, national private equity leader at BDO, said the industry has become more attractive to vendors as well post-pandemic.
  • Visit Business Insider Australia’s homepage for more stories.

Major deals across the tech, media and telecommunications sector have driven a private equity rebound in Australia, as institutional investors turned the corner on pandemic-induced market shock thanks to the global market’s digital transformation.

According to new analysis from Australian consulting firm BDO, private equity returns in Australia outpaced those of the ASX 200 by 111 basis points through the 2021 financial year, driven in large part by an uptick in exposure from super funds, and a newfound appetite for debt.

Market activity through the year was best reflected by the global industry’s shrinking pool of “dry powder” — funds set aside by a firm for rainier, more volatile periods — which fell from last year’s historic high of $US11.8 billion, to $US11.5 billion. 

Sebastian Stevens, national private equity leader at BDO, said the widespread availability of cheap debt has seen large firms just canabalise their competitors in order to buy growth, forcing private equity firms to become more competitive.

“It’s a competitive landscape that now looks really attractive to a vendor, as private equity is matching valuations for companies from trade purchasers,” Stevens said. 

“Private equity still has a huge amount of dry powder, but there’s a lot of competition out there with the cashed-up corporates wanting to buy as well,” he said. 

And it was Australian tech and telecom companies that piqued their interest through the pandemic, as any business interested in remaining solvent while consumers were trapped at home had to adopt rapid digitisation strategies. 

“Technology, media and telecommunications has always been the number one sector that private equity invests in and it has become more pronounced during COVID-19,” Stevens said. 

“While other sectors of the economy ground to a halt at the start of the pandemic, tech companies continued to push ahead, accentuating its attractiveness to private equity and cementing its position at the top,” he said. 

The last year has seen Australian super funds buck the trend, too, in a bid to diversify the world’s largest pension asset pool, worth roughly $3.1 trillion. 

In December last year, Australian Super — the nation’s largest pension fund — said that it was considering building a private equity team as it moved to bring more investment in-house to build on its returns.

Investing appetite among Australian super funds carried on all the way through to September this year as well, pushing the total value of merger and acquisition deals in Australia to a record high of close to $145 billion, per Bloomberg data

Two of the top five private equity deals only underscored the heightened demand for communications infrastructure in Australia, as the market shifted online. 

Among them was the acquisition of specialist fibre and network solutions provider, Vocus Group, which entered a scheme implementation deed with a consortium called Voyage Australia, bringing together Macquarie Infrastructure, Real Assets and Aware Super on a deal worth close to $5 million. 

The second was a deal that involved BAI Communications, a global infrastructure provider that attracted $2.6 million in growth capital from CPP Investment Board and Alberta Investment Management Corporation, giving the firm a bit of rocket fuel for global expansion. 

While private equity has long outperformed the majority of asset classes in Australasia, returns well and truly spiked coming out of 2020’s March quarter, and into the 2021 financial year. 

Since the March quarter in 2016, private equity returns have outperformed the ASX by at least 75 basis points, pocketing returns to the tune of 106%, compared to the 30% average clocked among the ASX 200.