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High End Private Equity Deals Wither, Smaller Deals Continue

Fuseworks Media
Fuseworks Media

Wellington, April 7 NZPA - A lack of top-end private equity deals last year meant total investment by private equity and venture capital in New Zealand slumped by over $1 billion to $178 million.

However, the amount of venture capital invested fell a more moderate 19 percent to $66m in 52 deals, compared with $82m invested in 60 deals in 2007, according to the 2008 New Zealand Private Equity and Venture Capital Monitor.

High profile private equity deals in recent years, including the purchases of Hirepool, Griffins, Independent Liquor, and Telecom's Yellow Pages directories business, boosted total investment to $1.2b in 2006 and 2007.

The total lack of top-end deals since the first half of 2007 reflected the state of debt market conditions amid the global financial crisis.

"What we are seeing now, particularly in the top-end of the market, is not a judgment on private equity as an investment class, but a reflection of the effects of an international economic crisis that is unprecedented in our lifetimes," said New Zealand Venture Capital Association chairwoman Franceska Banga.

Little was expected from the high-end private equity market in the first half of this year either, although an improvement was possible in the second half of the year.

However, mid-market private equity and venture capital deal values had held up reasonably well compared with historic averages.

The number of mid-market private equity deals rose to 30 last year from 23 in 2007, although the smaller average size of the deals meant total invested fell 45 percent to $112m.

A lot of the reduction was due to a decline in the previously active Australian-based fund activity. New Zealand fund activity was relatively stable.

"The effects of the crisis and impact on funding are more acute in top-end deals due to their reliance on debt markets," said Andrew Young, partner at the report's co-producer Ernst and Young.

"Private equity deals and exits may take a backseat for a period of time as fund managers focus on their existing portfolios."

There were 11 private equity and venture capital divestments last year, totalling $46.5m, up from seven the year before.

Government stimulus packages meant there may be some opportunities in infrastructure, and owners forced to sell assets could provide some opportunities for private equity.

"Our fund managers have good performance records over the past 15 years and will be looking to make investments in what is a good market for buyers," Ms Banga said.

"Opportunities exist where some very good New Zealand companies need capital and look to private equity funds perhaps more readily now than they have done in the past."

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