Mid-market private equity builds on increasing investment activity

The New Zealand Private Equity and Venture Capital Monitor, released yesterday, highlighted an increase of investment in 2015 for both private equity and venture capital markets. Mid-market investment increased to NZ$284.1m from NZ$243.5m in 2014. The average deal value at NZ$16.7m was greater than the average of NZ$12.8m in 2014. The increase in investment activity was coupled with continued strength in divestment as the portfolio companies of domestic funds sought investors for future growth.

Brad Wheeler, partner EY says ‘Venture and early stage funds invested NZ$62.5m across 69 transactions, continuing momentum from the last three years. IT and software has continued to be the dominant sector for venture activity continuing the trend of the last three years. Health and Biosciences remain at historical low levels reflecting the challenges of long lead-times and large capital requirements for innovation commercialisation.

‘The high level of mid-market activity included a mix of investment themes from international fund managers active in turnaround and secondary acquisitions from New Zealand owners. While new public listings were quiet in 2015 the market for private transactions was resilient with New Zealand owners and management wanting to see those businesses taken to their next stage.’

Total activity (investment and divestment) across all private equity and venture capital was NZ$494.4m, down from $919.5m in 2014, mainly due to there being no large buy-out deals. Large buy-out activity in 2014 was mainly driven by Pacific Equity Partners’ divestment of Griffin Foods to URC (Philippines). Total investment value was NZ$346.6m spread across 86 deals, while total divestment was lower at NZ$147.8m in 2015, down from NZ$620.3m in 2014.

Deals in 2015 included the acquisition of Manuka Health by Pacific Equity Partners, Tembusu Partners’ investment in CricHQ, Pencarrow’s investment in Icebreaker, Allegro Private Equity’s acquisition of Carpet Court and Archer Capital’s acquisition of the Aspire2 Group.

Matt Riley, chair of NZVCA says, ‘The outlook for the New Zealand PE and VC market remains positive. 2015 proved to be a successful year for mid-market divestments. This is a success oriented industry where the durability of the fund managers is wholly dependent on performance. There were no new funds raised in 2015 as managers continued building portfolios and other managers were returning capital from successful divestments. Several fund managers have announced intentions to raise new funds in 2016.’

Wheeler added, ‘For the year ahead, the PE and VC fund managers outlook remains positive, with some optimism generated by the emergence of new investor groups. EY’s latest Capital Confidence Barometer indicates a strong acquisition appetite globally with companies combining strategic M&A and cooperative alliances to navigate a complex and disruptive business landscape.’

Colin McKinnon NZVCA executive director says, `The strength of the mid-market continued in 2015. New Zealand privately owned businesses with private equity shareholders were able to execute growth aspirations by introducing new shareholders with capital and skills. Some of the new shareholders brought international capability to the New Zealand company growth trajectory.

‘Private markets and privately-owned companies continue to dominate the New Zealand business landscape. New investors have been able to access private markets through community and retirement savings platforms.
‘Kiwi founders and owners demonstrate innovation and determination that can be coupled with private capital to accelerate growth. More businesses growing makes a difference to New Zealand’s economic prospects.’