Private equity coming out of the dark: The motivations behind private equity activity in Australia

Purpose - The purpose of this exploratory study is to gain a better understanding of the motivations behind private equity (PE) activities in Australia. Design/methodology/approach - This paper reports findings arising from face-to-face semi-structured interviews with individuals representing stakeholders in the market for private equity; namely, PE partners and finance professionals. Interviews were conducted in two stages, during the pre-Global Financial Crisis (GFC) period (2007-2008) and the post-GFC period (2012). Findings - In general, the stakeholders interviewed perceive that the motivations behind PE bids are not well understood, and they highlight the need for more education. They state that PE enables a company's management to make decisions more promptly; capture opportunities more effectively; reduce paperwork for executives; provide no accountability to a broad investor base; and most importantly create value for a business, as the ownership is more closely involved with the management in the day-to-day operations of the business. According to the interviewees, since the GFC, PE firm reputation and track record are considered to be even more crucial than before the GFC, as debt providers in particular have become more wary when lending. Originality/value - The findings have implications for the agency relationship model. The principals' role might appear to be more tightly aligned with that of the agent, and so are their motivations, thus reducing monitoring costs, but post-GFC interview responses indicate that this might not necessarily be the case. Concerns over empire building and gains through transaction costs were raised. The paper concludes by drawing from the insights gained by the authors from the interview data. Although it is only a small part of the economy's Gross Domestic Product, PE activity has helped Australia become a more competitive business economy.