Australia: Private Equity: Nothing To Hide?

A record number of private equity transactions have taken place in the last 12 months. Whilst the majority of these transactions have involved smaller, unknown targets, there have also been a significant number of bids made for very large, well known and, arguably, well managed organisations.

Given the profile of some of these targets, there has been increasing media attention directed at private equity, which has coincided with increasing attention from the Federal Government.

In light of the actual and potential scale of private equity investment, the Federal Government claims that superannuation and ordinary savings of millions of Australians may potentially be at risk if invested in private equity.

In response to the potential risk, on 29 March 2007 the Federal Government referred an inquiry into private equity and its effects on the economy and capital markets to the Senate Standing Committee on Economics (Committee).

The Committee has been directed to assess:

• domestic and international trends in private equity

• whether private equity could be a matter of concern for the Australian economy if ownership, debt/equity ratios and risk profiles of Australian businesses were significantly altered

• the long term effects of private equity debt structuring on government revenue

• whether the current laws are sufficient to deal with any attack on national economic or strategic interests by private equity and, if not, what laws should be implemented

• what, if any, laws should be brought in to deal with private equity.

The terms of reference to the Committee and their underlying assumptions have been challenged by numerous stakeholders in submissions to the Committee.

With few exceptions, the general view is that private equity, within the current legislative framework, has had a positive impact on Australia's capital markets, government revenue and general economic performance and will continue to do so in the decades ahead, if not over-regulated by Government.

Notwithstanding this position, most stakeholders have welcomed the Committee's inquiry, and the opportunity to have a full and frank discussion of the risks and benefits of private equity investment.

The Committee's report is due on 20 June 2007. A more detailed update will follow the delivery of the report.

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