For all the rigour behind the figures, private equity is an emotive and divisive issue. Detractors liken it to a plague of locusts and capitalism on steroids. It's a pump and dump mechanism, which extracts value before shovelling the shrivelled remains onto our stockmarket for less sophisticated investors.
Proponents argue the opposite. Private equity acts as a cleansing system. It's a sanctuary for battered companies. A healing ground where broken corporate wings can be mended before the bird is set free. A chance to evict the grumpy old men from our boardrooms and replace them with far-sighted, keener-witted colleagues.
Is the recent rush of private equity buy-ups insidious Australianisation of our national wealth, as some would have us believe? Or simply New Zealand playing catch-up with international trends?
Certainly, we're behind the eight ball compared with Australia, the United Kingdom and the United States. As a percentage of total annual mergers and acquisitions, a typical measure of private equity activity, New Zealand's guestimated five to 10 percent is peanuts compared with the 50 percent notched up in the United Kingdom.
That private equity issues are now the talk of the town reflects the rapid rate of acquisition here in recent years. The latest annual New Zealand Venture Capital and Private Equity Monitor shows private equity investment rocketed up 250 percent in 2006 to $1.13 billion across 35 deals.
That would have included high profile transactions such as the sales of snack foods business Griffins, Blue Star Print Group and equipment rental company Hirepool.
Since then, Pacific Equity Partners and CCMP Capital Asia have soaked up Independent Liquor. Next Capital has bought a controlling stake in Nutra-Life Health & Fitness. And, most spectacularly, Telecom's Yellow Pages directories business has been bought by private equity partners CCMP Capital and the Teachers' Private Capital pension fund from Canada. (See box story "Let's go shopping".)
It has been all too easy, as New Zealand Venture Capital Association chairman Hamish Bell points out, for our media to focus on the top end of the market: "big dollars, big headlines, lots of interest". They are, he says, missing the bigger story which is unfolding in the corporate mid-market "where deals are generally smaller, the pool of prospects is large and where local investors dominate ... It's in the mid-market where the lion's share of New Zealand's future private equity transactions will occur."
The vast majority of New Zealand's mid-market companies are in private ownership. As their baby boomer owners scout round for exit strategies, private equity options will shift into the mainstream just as they have in Singapore, Australia and the United Kingdom. "This," predicts Bell, "will bring many opportunities for those businesses and their managers and investors alike." In other words, it ain't so bad and we'd better get used to it.
Back at the big end of the market, businesses are cycling through faster as well. According to Direct Capital managing director Ross George, studies show that a multinational subsidiary in Britain used to be sold every 11 years: that's now closer to every seven years.
Here on the other side of the planet, private equity transactions have either already touched, or are about to touch, the careers of most senior managers in New Zealand, he asserts. "Even five to seven years ago, the regional managers of multinational companies would think, 'we can sell that [part of the business] to that trade buyer. They now think 'we can sell that to the management group'."
NZX chief executive Mark Weldon is also keen to tease out the differences between private equity plays, on the grounds that different types of structures carry varying implications for the NZX and our nation's wider capital market.
He divvies up private equity plays into three camps. …