PE feels the pain as it waits for the gain

Private equity acquisitions in Australia are slumping and the job market is looking shaky too, with major firms reluctant to grow their headcount.

In the six months to December 2008, PE firms spent just $US616m on Aussie buy-outs, the worst half-yearly performance since early 2005 when the industry was still comparatively young, according to figures from the Australian Financial Review.

The challenge facing PE funds this year is whether they can anticipate any end to the downturn and snap up assets at the bottom of the cycle. But even if they see acquisition opportunities in 2009, access to debt financing looks likely to stay tight.

Employment is also suffering. Luke Heath, chief executive of Chandler Heath Executive Recruitment, tells a sobering tale: ìLate last year a candidate had been assured that he would get the role and his references had been checked. But the PE firm pulled the offer at the last minute and put all its hiring on hold.î

Recruitment at large global firms like CVC has taken the biggest hit, according to one headhunter who asked not to be named. Local players, such as Kestrel Capital and Archer Capital, are in a better position to hire if the market improves, she adds.

Heath agrees that some of the smaller firms might offer better job opportunities in í09. ìThe glimmer of hope weíre seeing is from the PE firms that are not so highly leveraged. Those that are more focused on turn-around and management of existing small and medium-sized companies, with a turn-over of US$50m to US$100m.î

Strong financial and commercial expertise are needed to succeed in these niche PE firms, as well as soft skills because you have to work closely with management of vested companies, says Heath. ìThey mainly recruit professionals with ënormalí PE backgrounds, from corporate finance banking, management consulting firms, and the consulting divisions of the Big Four accounting firms.î

Analysts and associates are most in demand at the boutiques, which are unlikely to dilute their capital by adding partners.