Obradovic added that assets acquired as part of a carve-out transactions have been among the most successful investments for private equity bidders. Reasons vary from a mis-valuing of assets in a larger entity to the lack of internal attention from management or misalignment with other parts of the business.
“The advantage private equity has is that often it’s done similar transactions in the space to the asset being carved out – or it’s effected a carve-out transaction in the past,” he said.
“PE can dedicate itself to this business exclusively either by leveraging success it’s had on a previous transaction or some type of value add where an asset has become a bit stale within an existing corporate structure.”
We’ve already started to see this activity bubbling to the surface with a trio of PE firms – KKR, TA Associates and EQT – pitching for Perpetual’s Corporate Trust and Wealth businesses. Ramsay Health Care is another, divesting its offshore hospital venture with Sime Darby to a TPG Capital-backed acquirer late last year.
While carve-outs were off the menu in 2023, dealmakers will remember their post-Banking Royal Commission heyday where the banks quickly offloaded non-core assets: Commonwealth Bank’s CFS to KKR and Westpac’s Strategic Alliances to Cerberus. Elsewhere, KKR snatched Arnott’s biscuits from Campbell Soup and Pacific Equity Partners, a sucker for a carve-out, drove off with Horizon Global’s Asia Pacific unit.
Private equity are particularly adept at carve-outs due to the inherently complex nature of the deals. “They’re really tough deals to get done – they’re complicated and involve a considerable degree of time both on the target side and the bidders side,” Obradovic said.
Allen’s PE commentary was informed by deals it is working on and discussions with private equity clients about their 2024 pipelines. Obradovic has worked closely with PE sponsors over the years including Bain Capital, PEP, EQT, Cerberus and KKR.
Locate your nearest exit
Allens has also branded 2024 as the year of the exit. predicting elevated levels of secondary – i.e PE-to–PE – transactions as sponsors seek to take advantage of improved exit conditions to offload assets.
“While PE vendors are unlikely to command the sky-high valuations of 2021, the improved confidence amongst bidders means that those looking to sell high-quality businesses should achieve strong multiples from cashed-up buyers,” Allens said.
On the buy-side, Allens reckons at least five assets worth north of $1 billion are slated for sale in the first half of 2024, giving sponsors plenty to work with. On the flip side, take privates will take a back seat.