Latest / The SME Stream / Private equity’s perception problem [VIDEO]

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Private equity’s perception problem [VIDEO] · The SME Stream

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Speaker 1: The information provided in this program is of a general
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Speaker 1: nature and is not intended to be personalized financial advice.
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Speaker 1: We encourage you to seek appropriate advice from a qualified
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Speaker 1: professional to suit your individual circumstances. Private equity funds are
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Speaker 1: behind the biggest of business buyouts, often worth billions of dollars.
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Speaker 1: They've been around for decades, but they're still faced with
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Speaker 1: a perception problem.
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Speaker 2: And I think part of the problem with that is
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Speaker 2: it was sort of a perception created in the early
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Speaker 2: days of private equity in the late eighties and particularly
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Speaker 2: in the US. You know, you hear, you know all
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Speaker 2: the Wall Street stories, you know, barbarians at the gate
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Speaker 2: and all this type of thing.
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Speaker 1: International private equity funds are involved in the ownership of
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Speaker 1: many big New Zealand businesses, including the All Blacks, Bluebridge,
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Speaker 1: Waste Management, Media Works, and the retirement village company MetLife Care,
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Speaker 1: which was a one point three billion dollar deal in
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Speaker 1: twenty twenty. Pacific Equity Partners is easily the most prominent
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Speaker 1: player in private equity down Under, buying and selling businesses
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Speaker 1: as Bergas, Hoyt Cinemas, Tegel, the Chicken company.
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Speaker 3: Teagle Guaranteed Fresh.
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Speaker 1: Chicken, Griffin's the maker of biscuits and Peter's ice cream,
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Speaker 1: Australia's tip top equivalent. According to Deloitte, there were one
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Speaker 1: hundred and forty nine buyouts across Australia in New Zealand's
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Speaker 1: last year, worth nine point four billion US dollars in total.
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Speaker 3: That fell from the previous years two hundred.
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Speaker 1: And five deals worth eighteen billion dollars, although that year
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Speaker 1: included Blackstone's six point six billion US dollar acquisition of
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Speaker 1: Crown Resorts. Blackstone is one of the global pe giants,
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Speaker 1: alongside KKR, Apolo and.
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Speaker 3: The Carlisle Group.
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Speaker 1: They will want to clip the ticket on the revenues
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Speaker 1: of successful private companies that are not listed on public
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Speaker 1: stock exchanges.
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Speaker 3: Historically, private equity.
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Speaker 1: Funds have outperformed the S and P five hundred, although
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Speaker 1: the data sets often differ, so it's kind of like
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Speaker 1: comparing apples with oranges.
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Speaker 3: There is a trade off too.
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Speaker 1: Private equity funds require investors to lock away their funds
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Speaker 1: for five to ten years, making it an illiquid investment option,
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Speaker 1: but firms like pp are trying to increase access to it,
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Speaker 1: with new funds being pitched to retail investors as we speak.
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Speaker 3: That's what it's.
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Speaker 1: Managing director, Cameron Blanks, was doing in New Zealand this
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Speaker 1: month trying to put a face to private equity.
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Speaker 3: Cameron, good to see, thanks much coming in.
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Speaker 2: Well, thank you very much for inviting me.
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Speaker 1: Madisone anytime I want to talk about private equity and
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Speaker 1: PP's role in it, but just on the macro about
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Speaker 1: what is private equity, how it's perceived. Can you describe
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Speaker 1: to me where you believe the private equity market globally
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Speaker 1: and also in Australia and New Zealand where it's at currently.
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Speaker 2: Yeah, well, I think if you go back to the
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Speaker 2: origins of private equity, it was all started in the
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Speaker 2: mid eighties in the US organized private equity where people
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Speaker 2: would raise funds from large institutional clients. So evolved out
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Speaker 2: of there. We're now forty years into that journey if
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Speaker 2: you think about the evolutions of the private markets. So
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Speaker 2: it's a large asset class today about twelve and a
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Speaker 2: half trillion in the global private markets if you think
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Speaker 2: at a macro level, and some very large managers of
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Speaker 2: money globally, So that's the sort of the global context.
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Speaker 2: Returns have been very good, it's absolutely been outperforming public
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Speaker 2: markets and outgrowing public markets. But obviously when you come
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Speaker 2: down to the individual countries and regions, you get some
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Speaker 2: nuance in that story. So you know, I can get
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Speaker 2: into a bit more of that context if that would
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Speaker 2: be helpful.
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Speaker 1: Well, how might you give us some anecdotal evidence of
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Speaker 1: what you've seen at PP in the Australia New Zealand markets?
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Speaker 1: How many deals have you done and say the past
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Speaker 1: year and compare that to say the past decade.
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Speaker 2: Yeah, so look, we've been in this market, the Australian
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Speaker 2: and New Zealand market. Our very first deal was in
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Speaker 2: New Zealand. It was a corporate carve out from the
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Speaker 2: Pair and Apple board of a business called three Court
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Speaker 2: in nineteen ninety eight. So twenty six years later, we're
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Speaker 2: seeing a very active market. Still four deals. We've typically
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Speaker 2: we look at about one hundred to one hundred and
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Speaker 2: twenty deals a year and we go through a filtering
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Speaker 2: process of assessing those like a lot of that one
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Speaker 2: hundred and twenty they're not necessarily for us, and we
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Speaker 2: know that reasonably soon, so we end up with a
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Speaker 2: core opportunity set of maybe twenty twenty five opportunities that
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Speaker 2: we're looking at every year and we'll probably do two
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Speaker 2: or three a year, and that's really been the same
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Speaker 2: cadence all the way through for us. You know, markets
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Speaker 2: go up and down, but a lot of it's about
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Speaker 2: the situations that we're investing in. There are periods, obviously
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Speaker 2: where it's a little slower than others. I think twenty
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Speaker 2: twenty two, late twenty two and twenty three were particularly
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Speaker 2: slow given the rise in interest rates, and it was
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Speaker 2: very hard for buyers and sellers to come to a
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Speaker 2: meeting of the minds around value. But generally that's the
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Speaker 2: cadence of deal flow that we do see and have
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Speaker 2: seen for a long time.
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Speaker 1: Do you feel like we're out of that now, the
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Speaker 1: fact that this economic cycle is finishing, that interest rates
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Speaker 1: are set to lower, albeit at a sort of neutrally
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Speaker 1: higher level. Are you seeing a bit more opportunity in
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Speaker 1: terms of people looking to sell to you, but also
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Speaker 1: easy exits out of businesses that you've already bought.
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Speaker 2: I think that's exactly right. It's just time for buyers
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Speaker 2: and sellers to come to an agreement around prices. Is
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Speaker 2: It does take time, and I think when you see
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Speaker 2: big changes in interest rates, it's harder for people to
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Speaker 2: have that perception around what's fair value. So we're definitely
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Speaker 2: seeing more activity and more preparation for activity.
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Speaker 3: Going on now.
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Speaker 2: So I would say, you know, restoring to normal is
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Speaker 2: on its way.
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Speaker 1: Private equity players are often I've heard referred to as vampires.
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Speaker 1: They go into businesses and they suck the life, suck
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Speaker 1: the blood out of them. They cut costs, they typically
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Speaker 1: cut staff. Then you sell the business for a gain
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Speaker 1: because you've made efficiencies within it.
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Speaker 3: Is that true? Is that what you do? Camer Well?
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Speaker 2: I think we certainly don't think that's a good characterization
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Speaker 2: of private equity, but we have, we do hear that
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Speaker 2: all the time, and I think part of the problem
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Speaker 2: with that is it was sort of a perception created
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Speaker 2: in the early days of private equity in the late
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Speaker 2: eighties and particularly in the US. You know, you hear
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Speaker 2: you know all the Wall Street stories, you know, barbarians
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Speaker 2: at the gate and all this type of thing. So
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Speaker 2: it is a character sure of our industry, unfortunately, and
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Speaker 2: we do have to answer those questions more often than
7:06
Speaker 2: we'd like to. But the reality is for a private
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Speaker 2: equity firm to have a sustainable business, we need to
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Speaker 2: be buying businesses and making them better and then having
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Speaker 2: a very clear growth story for the next buyer, because
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Speaker 2: if you're just dressing things up for sale, asset stripping,
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Speaker 2: not adding value, and not creating sustainable profit growth in
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Speaker 2: the businesses that you're buying, you don't have a very
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Speaker 2: sustainable business model and you will go out of business.
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Speaker 2: So the high quality private equity firms that have been
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Speaker 2: around for a long time have understood that they truly
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Speaker 2: need to buy businesses with a view to adding value
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Speaker 2: and building a better business for the next owners to
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Speaker 2: take on the next journey.
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Speaker 1: But fear to say, even decades later private equity and
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Speaker 1: it seems everyone is still painted with the same brush,
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Speaker 1: fairly or not, there is a perception for problem there.
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Speaker 2: You'd say, Look, I think you know perception is reality sometimes,
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Speaker 2: as people say, But I think if you really dig
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Speaker 2: into the reality of the way that private equity firms
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Speaker 2: have been around a long time ago about their business,
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Speaker 2: I think reality is quite different to that perception.
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Speaker 1: Have you heard of Charlie Munger's horse analogy when it
8:21
Speaker 1: comes to private equity.
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Speaker 3: And no, I have not able to share it with you.
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Speaker 1: Sure he referred to it as a farmer who had
8:26
Speaker 1: a great horse, but often misbehaved, had some issues. So
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Speaker 1: he went to the bit and said, I don't know
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Speaker 1: what to do with this horse. It's a great horse,
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Speaker 1: but every now and then it just has some behavior
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Speaker 1: behavioral issues. The bit says, I have the easy answer
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Speaker 1: for you. When it behaves well, sell it. He says,
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Speaker 1: that's what private equity does with businesses.
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Speaker 2: What do you make of that, Well, I mean, I
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Speaker 2: think you can have a lot of interesting stories. The
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Speaker 2: way that we think about it is if you're consistently
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Speaker 2: selling businesses that don't perform for the next owner, then
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Speaker 2: you will get a reputation for not selling businesses that
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Speaker 2: have sustainable profits in them, and therefore you will not
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Speaker 2: have a sustainable business. So you know, our view is that,
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Speaker 2: you know, as we're building these businesses and thinking about
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Speaker 2: how to build them in a sustainable way, we need
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Speaker 2: to make sure that the next buyers have good experiences,
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Speaker 2: so we become known as a good seller of businesses
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Speaker 2: as well, so we have a sustainable business. So interesting story,
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Speaker 2: good anecdote. But I think, you know, I think the
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Speaker 2: private equity firms that have been around for a long
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Speaker 2: time understand the needs to keep building sustainable businesses would
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Speaker 2: be what I would say to.
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Speaker 1: That, And when you're pitching this to investors, you most
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Speaker 1: private equity firms typically rely on their IRR.
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Speaker 3: Their internal rate of.
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Speaker 1: Return yours is twenty eight percent since inception.
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Speaker 3: I believe that's still correct.
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Speaker 1: Cool Warren Buffett to use a similar person who does
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Speaker 1: not particularly like private equity firms, he says that that
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Speaker 1: is dishonest to use the IRR because your assets a
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Speaker 1: never marked to market in a downcycle like public markets are.
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Speaker 3: So they always look good.
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Speaker 1: Can you explain to me the formula of your internal
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Speaker 1: rate of return? What goes into it? And is it
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Speaker 1: really a femish ye?
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Speaker 2: Well, the twenty eight percent that you just quoted is
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Speaker 2: the average delivered ir in a fund, So there is
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Speaker 2: no marks or anything like that. These are funds that
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Speaker 2: have been raised, deployed, and then returned to their investors,
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Speaker 2: so that number doesn't include any marks at all. So
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Speaker 2: we have delivered that return to investors and you know
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Speaker 2: it is a honest, sustained number over a long period
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Speaker 2: of time. So again, a lot of characterizations and people
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Speaker 2: say a lot of things, but that's certainly not our experience.
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Speaker 1: PP likes large late stage buyouts.
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Speaker 3: What is that?
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Speaker 1: Can you give me an example of one of those
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Speaker 1: that was executed perfectly by PEP.
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Speaker 3: Yes.
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Speaker 2: So, look, there's obviously a large part of the private
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Speaker 2: markets you know that people think about when they think
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Speaker 2: about private equity is often venture capital or growth capital
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Speaker 2: for companies that are privately held by individuals or a
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Speaker 2: group of individuals that are looking for capital to grow.
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Speaker 2: That's certainly not what we do at PP. We are
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Speaker 2: really focused on what we call late stage buyouts. So
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Speaker 2: these are big established businesses that have market leading positions
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Speaker 2: that have sort of lost their way, either on the
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Speaker 2: public markets or as divisions of big multinational companies or
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Speaker 2: the like, that we can carve out or take private,
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Speaker 2: give a new lease of life, typically with new management,
11:57
Speaker 2: and have them go and execute a very clear strategy
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Speaker 2: of doing two or three things differently than they've done
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Speaker 2: in the past to work towards doubling the profits of
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Speaker 2: those businesses in a sustainable way, as we've spoken about.
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Speaker 2: So that's the style of private equity that we do.
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Speaker 2: But it's very important, you know, when people are trying
12:17
Speaker 2: to understand their industry, to understand what stage of a
12:22
Speaker 2: company's life that they invest in and how do they
12:25
Speaker 2: go about generating returns for their investors, because not every
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Speaker 2: private equity firm is doing the same thing or participating
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Speaker 2: in the same part of the cycle of the industry.
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Speaker 1: Two or three things to double profits, I mean, tell
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Speaker 1: us what they are, because either one would do them
12:41
Speaker 1: if they could.
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Speaker 2: Seems like well, a really easy example to explain is
12:48
Speaker 2: Teagle Chickens, which is a great New Zealand brand. Now
12:53
Speaker 2: this is a deal from a long time ago. We've
12:57
Speaker 2: long since gone from Teagle Chickens and we own the
12:59
Speaker 2: business for two or three years, but this was a
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Speaker 2: corporate carve out from Heines. So New Zealanders may or
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Speaker 2: may not remember, but for many years Tiger was owned
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Speaker 2: by Heines. It was the only chicken business that they
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Speaker 2: owned globally. And the way that the incentives worked within
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Speaker 2: the broader Heinz system was really US centric, where every
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Speaker 2: percent of market share in the US is really important
13:28
Speaker 2: profitability of Heines. So if you think about tomato, sauce
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Speaker 2: and all of those things that Heines are known for,
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Speaker 2: their whole management incentive structure is around market share. So
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Speaker 2: what had happened down here in New Zealand on their
13:42
Speaker 2: only chicken business globally is the management team was incentive
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Speaker 2: on market share, so they kept on spending capital on
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Speaker 2: growing out the capacity of chickens that they could produce
13:55
Speaker 2: to put into the market. Well, we all know what
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Speaker 2: happens when you produce a lot of volume, Well, price
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Speaker 2: goes down and a supply and demand. And so the
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Speaker 2: management team of Teagele were getting their bonuses because they
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Speaker 2: were increasing their market share, but their profitability was going down.
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Speaker 2: But it didn't matter because you had the wrong incentives
14:16
Speaker 2: in place and a far flung business in the broader
14:18
Speaker 2: Hinds network. So a big part of the thesis around
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Speaker 2: that acquisition, as an example, was to stop doing that,
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Speaker 2: to buy the business, to stop increasing volume, and to
14:33
Speaker 2: ultimately realize about a price by value adding in the chicken,
14:37
Speaker 2: so going up the supply chain, so you were then
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Speaker 2: delivering a packaged you know, smoke chicken or whatever the
14:45
Speaker 2: product the value add was, and invest in that rather
14:48
Speaker 2: than just continue to pump chicken into the market.
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Speaker 3: How did you find out about this?
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Speaker 1: How did you find out about the effectively ill advised
14:56
Speaker 1: and zent of structures and how it was impacting their margin?
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Speaker 3: Do you have people come to and tell you the stuff.
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Speaker 2: Yes, yeah, yeah, I mean, look, we've been in the
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Speaker 2: market for a very long time. We're one of the
15:04
Speaker 2: biggest pools of capital in the market. I think we
15:07
Speaker 2: were actually tracking the Heines sort of story for about
15:13
Speaker 2: seven years before we executed that deal. We would fly
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Speaker 2: to the US and talk to head office about one day,
15:21
Speaker 2: would they sell their subsidiaries down in this part of
15:25
Speaker 2: the world. What the catalyst for that deal was was
15:28
Speaker 2: there was if you remember, it was around about the
15:31
Speaker 2: time that there was an avian bird flu up in
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Speaker 2: Hong Kong which started to spook the world about you know,
15:39
Speaker 2: the losing birds and obviously chickens through the AVM bird crisis.
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Speaker 2: No I really wanted to eat then well, and also
15:48
Speaker 2: the companies were very worried about their flocks getting wiped
15:52
Speaker 2: out and the like. So we did a big study
15:54
Speaker 2: about this as part of our due diligence of whether
15:57
Speaker 2: this was a good business to buy. Turns out that
16:01
Speaker 2: there's no migratory birds that come into New Zealand. You
16:05
Speaker 2: have a very biosecure framework in New Zealand, so the
16:09
Speaker 2: chance of av and bird flu coming into New Zealand
16:12
Speaker 2: was very low. Yet you had a business in hind
16:15
Speaker 2: that was headquartered in North America that was very worried
16:19
Speaker 2: about this. So they were actually willing to sell their
16:21
Speaker 2: chicken business, their only chicken business, in the middle of
16:24
Speaker 2: an av and bird flue at a relatively attractive price.
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Speaker 2: So that's a classic example of what happens within these
16:31
Speaker 2: large global organizations where decision making is made around non
16:36
Speaker 2: core subsidiaries that are relatively irrelevant in a relatively irrational manner.
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Speaker 2: And it's a great example of the types of opportunities
16:45
Speaker 2: that we focus on within PP.
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Speaker 3: So you go pretty deep on your due diligence.
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Speaker 2: Absolutely, I mean it's everything. It's about asset. Ultimately, we
16:55
Speaker 2: only do three things. We just what to buy and
17:01
Speaker 2: that's through very deep due diligence on the asset and
17:04
Speaker 2: the market dynamics and the position of the business in
17:06
Speaker 2: the market. Who to run it. The CEO of that
17:10
Speaker 2: business was very important, as a guy called ron Bella,
17:13
Speaker 2: a great New Zealander. You know, Ronnie's a great guy,
17:17
Speaker 2: and we loved investing behind Ronnie, supporting him in executing
17:21
Speaker 2: that strategy. And then ultimately we get to decide when
17:25
Speaker 2: to sell an asset. Unlike the listed markets, you're always
17:29
Speaker 2: for sale. With a private asset, you can decide when
17:33
Speaker 2: to sell the business. So it's those three things that
17:36
Speaker 2: we really do. What to buy, who to run it,
17:39
Speaker 2: and when to sell it. And that's fundamentally the job
17:43
Speaker 2: of a private equity executive.
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Speaker 3: Specifically on what to buy.
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Speaker 1: We will talk more about exits and that strategy in
17:49
Speaker 1: a minute, but it seems like PP has very much
17:51
Speaker 1: liked FMCG. You had chickens here, you're Chicky here and
17:55
Speaker 1: Bicky across the ditch.
17:56
Speaker 3: With Griffin's biscuits.
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Speaker 1: Is that preferred still or you look at at other things.
18:00
Speaker 2: Look, I think what we don't like is businesses with
18:04
Speaker 2: uncontrollable risks in them that we can't control from a
18:08
Speaker 2: management perspective. So it's more about finding businesses that don't
18:13
Speaker 2: have that characteristic. So more recently we've been investing in education,
18:18
Speaker 2: in healthcare FMCG obviously, or business services or things where
18:23
Speaker 2: we feel like it's actually management execution that delivers the
18:28
Speaker 2: profit growth as opposed to trying to ride some new trends. So,
18:33
Speaker 2: you know, PPS not chasing AI, although we're very interested
18:37
Speaker 2: in AI and what it can do for our portfolio companies.
18:40
Speaker 2: We're not looking for AI investments and we never have
18:44
Speaker 2: been a trend based investor. It's about finding good, stable
18:47
Speaker 2: businesses with clear strategies that can double the profits of
18:53
Speaker 2: those businesses. It's really that simple.
18:55
Speaker 1: On the exit side, on the way out, have you
18:58
Speaker 1: ever been impacted by a liquidity, we've either been forced
19:01
Speaker 1: to revalue something low or forced to sell it well.
19:04
Speaker 2: Typically we've always sold businesses at an average of about
19:09
Speaker 2: thirty percent premium to our valuations. And again it's very
19:14
Speaker 2: important on the valuation side to differentiate from venture capital
19:19
Speaker 2: and growth capital compared to late stage buyout. The motivations
19:24
Speaker 2: for venture capital and growth capital is to write up
19:27
Speaker 2: very high valuations because they're doing rounds of funding where
19:32
Speaker 2: when you need new funding it comes in at that valuation.
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Speaker 2: Very different dynamic in late stage private equity, where we
19:39
Speaker 2: focus where there isn't a rounds of funding. We buy
19:42
Speaker 2: one hundred percent of the business and then we own
19:44
Speaker 2: it and then we sell it when we choose, and
19:50
Speaker 2: at that point in time we get a performance fee.
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Speaker 2: We don't get any sort of compensation based on the
19:56
Speaker 2: valuations on the way through, and we don't care what
19:59
Speaker 2: those valuations are. We never used to even do valuations.
20:02
Speaker 2: We just hold the businesses at cost until we sold them.
20:06
Speaker 1: Well, then, how would you not to sell it if
20:07
Speaker 1: you didn't know what value you were going to get.
20:09
Speaker 1: Would you value it around the time of particul sale.
20:11
Speaker 2: Well, obviously we don't value the assets. The market values
20:15
Speaker 2: the asset. The buyers value that.
20:16
Speaker 3: It's a market, it's private.
20:18
Speaker 2: But whatever we think the value is is irrelevant. It's
20:21
Speaker 2: what the buyers think is the value. So our valuations
20:25
Speaker 2: are totally irrelevant. We don't even think about them. The
20:27
Speaker 2: only reason we do them is because we have pension
20:33
Speaker 2: fund investors that have members who are coming in and
20:39
Speaker 2: out of their pension funds and they need evaluation, so
20:42
Speaker 2: they have asked us to do valuations for them. We
20:46
Speaker 2: take them very seriously because it's our fiduciary responsibility. But
20:51
Speaker 2: we actually want to have those valuations at a at
20:55
Speaker 2: a level that we know we can find buyers to
20:58
Speaker 2: pay more than that. We're exiting at about thirty percent
21:02
Speaker 2: premium to our current valuations. It's really important. That's the
21:06
Speaker 2: dynamic in late stage private equity, different dynamic in venture
21:11
Speaker 2: capital and growth capital, and that's that's the area where
21:15
Speaker 2: people go all the private equity evaluations are rubbish. They
21:19
Speaker 2: true in the venture capital and growth based not true
21:23
Speaker 2: in late stage buyer. This is where all this nuance
21:27
Speaker 2: about our industry. It's really important to do your research
21:31
Speaker 2: and understand how our industry works.
21:34
Speaker 1: I yes, you don't care about valuations, but what do
21:37
Speaker 1: valuations look like At the moment. They had a pretty
21:39
Speaker 1: incredible way through the cheap money era, I imagine now
21:42
Speaker 1: valuation of private businesses is looking at bit tough as
21:44
Speaker 1: the margins struggle.
21:46
Speaker 2: Well, I mean again, we're dealing in late stage private
21:50
Speaker 2: equity with big, boring businesses, so you know, tissue businesses,
21:53
Speaker 2: ice cream businesses, you know, hospitals, education businesses. So we're
21:59
Speaker 2: not in the sort of very highly valued tech type. Well,
22:05
Speaker 2: so the valuations when you look at the multiples, you
22:08
Speaker 2: may have gone from an average of twelve times profits
22:12
Speaker 2: to ten times profits. But actually when you look at
22:14
Speaker 2: the sort of compression of multiples is not anywhere near
22:18
Speaker 2: as much as you think when you think in the
22:20
Speaker 2: industrial sort of more traditional parts of the markets, and
22:26
Speaker 2: so you know, those valuations obviously the way that we
22:29
Speaker 2: think about and applied to the profits that we're making
22:32
Speaker 2: in the businesses. So if we're doubling the profits of
22:35
Speaker 2: the businesses, whether the valuations have gone from twelve to
22:39
Speaker 2: ten or twelve to eleven, the value of the businesses
22:42
Speaker 2: have still grown dramatically. Just because the multiples come down
22:46
Speaker 2: by a turn doesn't really make that much difference.
22:49
Speaker 1: So what are you doing in New Zealand? Are you
22:51
Speaker 1: looking for businesses to buy? Are you asking investors for funds?
22:54
Speaker 2: All of the above And we're always doing all of
22:57
Speaker 2: the above. We're here in New Zealand a lot it,
23:00
Speaker 2: you know, from our perspective. Even though we have one
23:03
Speaker 2: office in Sydney, as I referenced before, our very first
23:07
Speaker 2: deal was here in New Zealand. And then over the
23:11
Speaker 2: twenty six years that we've been in existence, we've probably
23:13
Speaker 2: deployed about a third of our capital in New Zealand.
23:16
Speaker 2: So it's a very active market for us. And you know,
23:20
Speaker 2: we continue to invest very heavily in New Zealand. We
23:23
Speaker 2: love it as an investment destination, we love it as
23:26
Speaker 2: a country, and we you know, are expanding our ability
23:31
Speaker 2: to raise capital from New Zealand individuals as well, which
23:34
Speaker 2: we're really excited about.
23:36
Speaker 3: What's a New Zealand business You would love to buy.
23:40
Speaker 2: Oh that's a no.
23:42
Speaker 3: It's not you'd have a wesh list.
23:45
Speaker 2: Well we do, I mean I think we you know,
23:47
Speaker 2: we're situational investors. So what we learned early on in
23:51
Speaker 2: our existence is it's like, you know, walking down a
23:54
Speaker 2: road of beautiful homes and say, I'd love to own
23:57
Speaker 2: that one, but it's not for sale because the person
24:01
Speaker 2: living in the home doesn't want to sell it. And
24:02
Speaker 2: that's what we've learned about, you know, private equity investing,
24:07
Speaker 2: is the vendor wants to actually sell, so, you know,
24:11
Speaker 2: to actually go and search around with a list, you know,
24:16
Speaker 2: in our minds, is a bit of a waste of time.
24:18
Speaker 2: We'd much prefer to make sure that we know what
24:21
Speaker 2: a vendor is thinking before we before we really start
24:25
Speaker 2: to work on an opportunity.
24:27
Speaker 3: Everyone's willing to sell at the right price.
24:29
Speaker 2: Though, but are you willing to buy at that price?
24:32
Speaker 2: So this is this is this whole dynamic that we
24:35
Speaker 2: were talking about before, which is about buyers and sellers
24:38
Speaker 2: having a common view on value and ultimately a vendor
24:42
Speaker 2: does need to decide to sell before we can buy.
24:46
Speaker 2: So yeah, we don't we don't stylistically run around with
24:52
Speaker 2: lists or thematic things where it's actually situational investors?
24:57
Speaker 1: Are you finding that when these vendors do come to
25:00
Speaker 1: you and they are willing to sell their business and
25:02
Speaker 1: allow you to buy it, and you having to factor
25:04
Speaker 1: and more features to deals now, like promises to not
25:08
Speaker 1: cut staff or to move manufacturing, or more executive earnouts
25:12
Speaker 1: for example.
25:14
Speaker 2: Look, it's been I think if you think about the
25:17
Speaker 2: context that private equity is investing into, it's been reasonably consistent.
25:24
Speaker 2: You know, we're a private buyer of businesses and the
25:27
Speaker 2: vendors typically are trying to maximize the price that they
25:31
Speaker 2: can sell the asset. If they're selling one hundred percent
25:33
Speaker 2: of the asset, then it's really all about price. And
25:37
Speaker 2: so you know, we're not running around and trying to
25:41
Speaker 2: buy things cheaply. We're happy to pay full and fair
25:44
Speaker 2: prices for good businesses that we think we can make
25:49
Speaker 2: to build into a better business. So generally, know, there
25:54
Speaker 2: are circumstances where a vendor will actually look to all
26:00
Speaker 2: their equity with you and continue the ownership. So at
26:03
Speaker 2: that point in time, the dialogue actually goes to what
26:06
Speaker 2: can we do to add value to that business and
26:10
Speaker 2: how can that vendor come along on the next leg
26:13
Speaker 2: of the journey for us. So that's more those sorts
26:16
Speaker 2: of deals opportunities that come with a few other conditions
26:23
Speaker 2: along the way, but typically they're asking us to come
26:26
Speaker 2: in and add value to those businesses. So it's a
26:29
Speaker 2: mutual dialogue of getting on the same page about the
26:31
Speaker 2: strategic plan for the next leg of the journey.
26:34
Speaker 1: Favorite business you've bought and sold out of how much
26:37
Speaker 1: money did you make on it?
26:38
Speaker 2: Yeah, Look, my personal favorite is a business called in Telehub.
26:43
Speaker 2: It's a business we actually still own, but we've sold
26:46
Speaker 2: to what we call as a single asset continuation fund
26:51
Speaker 2: which we manage.
26:52
Speaker 3: As well yours right, moving it into a lot of un.
26:55
Speaker 2: Although we sold fifty percent of it to Brookfield, so
26:58
Speaker 2: there was absolutely a new investor came in and valued
27:01
Speaker 2: the business and it's a terrific business. So it was
27:04
Speaker 2: a combination of a corporate carve out from Origin Energy
27:08
Speaker 2: and a corporate carve out from Mercury Energy here of
27:12
Speaker 2: their smart metering division. It's a business that, particularly in Australia,
27:17
Speaker 2: is going through a rapid period of growth as Australia
27:21
Speaker 2: catches up to New Zealand with the deployment of their
27:24
Speaker 2: smart meters, and so this business is incredibly well positioned
27:28
Speaker 2: to be right at the center of the energy transition
27:32
Speaker 2: in Australia and is a very big business with a
27:35
Speaker 2: huge amount of opportunity. It's an absolute delight to have
27:39
Speaker 2: monetized the first leg of the journey through selling fifty
27:44
Speaker 2: percent to Brookfield, but enjoying the next leg of the
27:48
Speaker 2: journey with Brookfield to again double the profits and continue
27:52
Speaker 2: that growth.
27:53
Speaker 1: How much dry powder are you sitting on currently ready
27:56
Speaker 1: to allocate?
27:57
Speaker 2: Yeah, so we've fully deployed our six private equity fund.
28:02
Speaker 2: We're currently in the process of raising a three billion
28:05
Speaker 2: dollar fund seven. That raise is going very well. It'll
28:09
Speaker 2: be completed by the end of the year, and then
28:11
Speaker 2: we will we spend. Although we already have one deal
28:15
Speaker 2: that we've already done and warehoused to go into. There's
28:18
Speaker 2: already deal in the fun we are deploying. We continue
28:22
Speaker 2: to deploy. As I said, we end up doing you know,
28:24
Speaker 2: two to three deals each year.
28:26
Speaker 1: If I bring you a deal of a business that
28:28
Speaker 1: wants to sell, do I get a cut camp how
28:31
Speaker 1: it works?
28:32
Speaker 2: Absolutely?
28:33
Speaker 3: I'm not buying it.
28:34
Speaker 2: Yeah, we just have to discuss.
28:38
Speaker 3: That's right. Thank you so much for coming. I'd love
28:41
Speaker 3: with the chat to you as always wonderful.
28:42
Speaker 2: Thank you very much, Ma,