Direct Capital on the hunt after raising $375m

Ross George, Managing Director, Direct Capital, Auckland, New Zealand. 07 February 2017 New Zealand Herald photograph by Brett Phibbs.

Private equity investor Direct Capital is on the hunt for acquisitions after raising $375 million for its latest fund.

Despite private equity typically being associated with high-net worth investors, every New Zealander will have a stake in the buying decisions founder Ross George and his team make.

This capital, like much of the $1.2 billion the company has raised since it started in 1994, has come from New Zealand's biggest institutional investors, George said.

"So it's the ACC, it's the NZ Superannuation fund, big pension funds like Annuitas and other long-term investors like community trusts, utility trusts, iwi groups and religious groups," he said.

"It was a good capital-raise in that we only really had to go back to existing investors."

In fact, the money was raised in just two months late last year and the target was hit so quickly that investors would have had to have been scaled back if it had been done on the public market.

But it was typical of New Zealand's private investment sector, where there was always a lot going on below the radar, George said.

Direct Capital already holds stakes in prominent New Zealand companies such as Bayleys Real Estate and online retailer Fishpond.

It has previously held stakes in businesses such as Ryman Healthcare, Sky City, Scales Corporation, Eftpos, and transport operator GoBus.

Ryman was floated in 1999 and more recently Direct Capital has floated horticulture business Scales and NZ King Salmon.

While the hunt was now on to make some significant new acquisitions, George is confident that there is no shortage of good opportunities out there.

The demographics of New Zealand business ownership mean there are numerous mid-sized businesses where the owners are looking at succession issues.

"A lot of the owners don't want to go through the IPO process," he said.

"We will sometimes become the public face for that."

While the strength of private business sector in New Zealand, relative to our public capital market, is often bemoaned by those in the industry, George said he felt the NZX is in a good place now.

"When we started it was quite hard to list a stock exchange," he said.

Outgoing chief executive Tim Bennett had done a lot of good work getting alongside medium-sized operators, George said.

The capital markets were starting to reflect more accurately the make-up of the New Zealand business sector.

Taking companies through to the public market was a satisfying part of the job, he said.

Meanwhile, the bullish business cycle and the prospect of companies being fully valued was not a major concern.

"In the 23 years we've been going, the cycle changes all the time, so we have to invest with long-term macro views. We invest, if we can, in a good industry, in a good business with good management and a sensibly funded balance sheet," he said.

"Obviously over our long-term time frames those cycles change all the time."

It was common misconception about private equity investors that they were looking for distressed companies to restructure and sell off.

"That's not us. All we're trying to do is accelerate growth. There are private equity funds around the world like that, but most don't actually do that.

"Most of us just try to invest in good businesses and grow them."