BRW Rich 200 members have offloaded assets valued at more than $15 billion in the past year. So why have they done it and what does it mean for the economy?
Australia's super wealthy have engaged in an unprecedented level of selling over the past 12 months, disposing of more than $15 billion worth of assets. Enormous fortunes have been made, empires have been liquidated overnight, careers have ended and new businesses have been born. The economy is awash with money and private equity firms, property developers and public companies are desperate for new assets to boost returns. BRW Rich 200 members such as James Packer, Kerry Stokes, Solomon Lew and Lang Walker have been presented with deals that were simply too good to refuse.
But there are other reasons behind the great sell-off. Some Rich 200 members are selling up to expedite the transfer of wealth to their children. Some just want to retire. Others are seizing the opportunity to enter new businesses or rebalance their investment portfolios. And in what should be a warning for the business community, the Rich 200 - who are legendary for their ability to spot trends - are also selling up because they see trouble ahead.
Queensland billionaire John Van Lieshout was one of the first Rich 200 members to sell up last year. In May 2006, Van Lieshout offloaded his Super A-Mart furniture business to the private equity group Ironbridge Capital for $500 million. Van Lieshout, a Dutch migrant who arrived in Brisbane as a teenager in the 1960s and owned his first furniture store by the age of 23, built Super A-Mart into a 21-store chain with revenue of more than $350 million. The business was his life's work, but Van Lieshout knew it was time to sell up. "I got 13 times earnings," he says. "I think only once in a lifetime someone comes along and offers you that sort of money."
Greg Will, a PricewaterhouseCoopers partner who looks after a number of moneyed clients, says it is a common refrain among the legion of wealthy sellers. "There are some prices for businesses out there that are just too good to refuse. We've never seen anything like the past 12 to 24 months."
Market observers have been regularly surprised by the magnitude of many deals involving Rich 200 members. Property commentators were stunned when the Besen family received $621 million for a half-share in its Highpoint Shopping Centre and surprised at the $270 million David Burger received for the Mid City Centre building in Sydney. Media industry insiders were amazed when James Packer got $4.5 billion for a half-share in Publishing & Broadcasting Ltd's media business and when Kerry Stokes sold a half-share in his Seven Network for about $4 billion.
The $130 million Solomon Lew received for his Witchery women's fashion chain was more than most pundits predicted. Harvey Norman executive chairman Gerry Harvey thought Archer Capital's offer for the company's stake in Rebel Sport was overly generous, so he sold up and took a $150 million profit. The founder of the RAMS Home Loans business, John Kinghorn, is selling that business. Some analysts value the company at $500 million, but offers are flooding in about the $1 billion mark.
There is an old saying in the business world: when the rich start selling, the market is about to turn down. Will says many of his clients are worried about when Australia's decade-long period of prosperity will end. "It is definitely a concern for them. Waiting for the downturn is really top of mind, because that's how they have made their investment decisions in the past."
The senior vice-president of Merrill Lynch's private wealth services division, Dara Minbashian, agrees. "If you are a seasoned investor you always get worried when there is so much money around." Van Lieshout has clearly made a judgement that the prosperous times the company has enjoyed thanks to the Queensland population boom could be about to end. "The furniture business is wonderful when there is a housing boom. But it is tough when the housing market isn't going so well."
Indeed, Van Lieshout seems genuinely confused about the state of the Australian economy. As part of the Super A-Mart sale, Van Lieshout retained the property Super A-Mart sits on, including its stores, warehouses and offices (the portfolio is believed to be worth about $400 million). He had planned to plough some of the proceeds from his sale into more property investments but he is struggling to pick the market. Prices have skyrocketed in recent months to levels Van Lieshout cannot understand. "There must be so much money in the market that people are willing to pay anything. I don't want to sit on the sidelines for too long because maybe the market will stay like this. It makes me a little bit worried. Whenever I see that it's too good for too long I get concerned. It is certainly different to what I have seen in the past 40 years."
Some property-industry moguls are also wondering whether the market is near its peak. In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. Included in the deal were shopping centres and a slew of retail, commercial and industrial property. Walker started the sale process in March 2006, but most potential suitors baulked at the price he was asking. In the end, Mirvac picked through the assets individually and Walker sold only those he felt were priced correctly. West Australian investor and Rich 200 member Stan Perron also purchased some of Walker's assets. What makes the sale particularly significant is that it is the second time
Walker has sold the bulk of his portfolio. In 2000, he sold the listed Walker Corporation to Australand for $110 million, brilliantly picking the top of the cycle. Bill Bowness sold the Australian portfolio of his Wilbow Corporation to listed property company FKP for $330 million in September 2006. The sale was partly driven by Bowness's desire to step away from what he calls the "property coalface" and diversify into areas such as mezzanine financing.
Last year, however, he said he was shocked at the prices being paid for property assets. "There is so much money around and there are fund managers who are wanting to do all sorts of things," he says. "There will be tears."
But it is not all bad news. The managing director of Goldman Sachs JBWere's private wealth management division, Paul Heath, believes there are other reasons for the great sell-off besides big prices and concerns about the business cycle.
He points to succession as a big motivator. Australia's wealthy entrepreneurs are ready to hand over to their children, but are finding the next generation unwilling to grab the reins. "The younger generation see other opportunities that don't involve the family business," Heath says. Many rich entrepreneurs are finding that selling their business and splitting the proceeds is a lot easier than trying to persuade unwilling family members to take over.
Goldman Sachs JBWere's head of investment banking, Clark Perkins, says the spate of sell-offs also has much to do with the rapid growth of the private equity industry in the past 12 to 18 months. While wealthy business people have always had the option of selling their business through a public float or a private trade sale, the extremely flexible nature of private equity deals gives them a range of new options. They can sell a business in its entirety, or just sell a chunk. They can arrange to stay in the business for five years or stop work immediately. They might, like Van Lieshout, sell the operating business and keep the property.
"Private equity is providing ... a very real alternative that just didn't exist five years ago," Perkins says. He adds that a private equity deal is also often more palatable for a wealthy entrepreneur than selling out to a bitter rival through a trade sale or facing the public scrutiny a float brings. "Private equity provides a discreet, more confidential exit compared to the public market."
Of course, not every sell-off was motivated by a desire to exit. Perkins says many wealthy business people are also looking to do private equity deals to take their business to the next phase of its life. "They are looking for some fresh thinking and a drive to push the business to grow again." That is exactly why James Packer and Kerry Stokes did private equity deals.
By selling half of their media businesses for $4.5 billion and $4 billion respectively, Packer and Stokes have built massive war chests with which to make other acquisitions and expand their businesses. Packer has already made several acquisitions in the gaming sector while Stokes appears poised to play a big part in the coming shake-up of the Australian media sector.
So will the great sell-off continue? Almost certainly. Private equity funds are swollen with cash and must find ways to spend it if they are to earn the returns their investors demand. This means Rich 200 members will continue to be courted and tempted with huge prices for their businesses.
Rich 200 members are also likely to court private equity firms. Perkins says wealthy individuals and families now understand the private equity model and are more confident it can deliver them a profitable exit or capital to grow.
The sell-off will also continue as the members of the Rich 200 age. Merrill Lynch's Minbashian says: "The next 10 years will see a lot of people selling up simply because they are getting old. These guys are getting to 70 and 80 and 90 and they don't want to run a business any more."
OFFLOADING
Rich 200 members who have sold assets in the past yearBill Bowness Sold the Australian assets of his Wilbow Corporation to FKP Property Group for $330 million in September 2006. He is pessimistic about the Australian property industry and was keen to cash out while the price he could get for his portfolio was sky-high.
David Burger The Sydney property developer sold the Mid City Centre in Sydney for $270 million in May last year.
John Gandel The shopping centre magnate cashed up last year by selling his management stake in the $4.8 billion CFS Retail Property Trust to Commonwealth Bank for about $400 million. In December 2006, Gandel also sold his portfolio of upmarket retirement villages to a consortium of Macquarie Bank and property group FKP for about $105 million.
Tony Haggarty and Chris Ellis In October 2006, Haggarty, Ellis and their fellow directors of Excel Coal agreed to sell the company for $1.8 billion to Peabody Energy, the world's largest private sector coal producer.
Gerry Harvey The veteran retailer sold Harvey Norman's $185 million stake in Rebel Sport to private equity firm Archer Capital. Harvey Norman made $150 million on the deal. John Kinghorn The jewel in John Kinghorn's investment portfolio, RAMS Home Loans, is on the sale block. There have already been a few offers about the $1 billion mark from suitors including National Australia Bank. Private equity firms are ready to pounce, but a float has not been ruled out.
Solomon Lew Veteran retailer Solomon Lew agreed to sell his stake in Coles Myer to Wesfarmers for about $1.14 billion in April this year, severing his ties with the retail giant after a 20-year relationship. In July 2006, Lew sold the Witchery women's fashion chain to private equity firm Gresham Private Equity for $130 million, about $15 million more than its original offer.
James Packer In October 2006, Publishing & Broadcasting Ltd sold 50 per cent of its media business to private equity group CVC Asia Pacific for $4.5 billion. Packer got the best of both worlds: PBL retains control of the new media company and also gets a pile of cash to pay down debt and sink into expanding gaming assets.
Ralph Sarich Ralph Sarich's property company, Cape Bouvard, sold $500 million of assets to United States conglomerate GE in January. The portfolio includes office buildings in Perth, Sydney and Melbourne. While the portfolio was not officially for sale, Sarich says he had many unsolicited approaches during the previous year. GE paid cash for the assets. Peter Scanlon When Peter Scanlon agreed to sell his stake in ports company Patrick Corporation to logistics company Toll Holdings, the takeover battle for Patrick was effectively over. Scanlon took
$405 million worth of cash and shares from the deal.
Kevin Seymour He put a $250 million portfolio of properties on the market in early 2006 and sold an office building in Brisbane in February for $28 million. He is good at picking market cycles and regularly trades properties to lock in profits.
Kerry Stokes He followed the lead of James Packer by selling a 50 per cent stake in Seven Network to private equity company Kohlberg Kravis Roberts for about $4 billion. Ken Talbot The coalmining veteran, who owns a majority stake in Macarthur Coal, sold his chain of six hotels to Cairns pub baron Tom Hedley in October 2006 for $110 million. Talbot plans to invest the proceeds of this sale in a private mining group. Talbot Group Holdings recently invested $26.4 million in Timor Sea explorer Karoon Gas Australia.
Lang Walker In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. West Australian investor and Rich 200 member Stan Perron also purchased some assets.
Besen family In March 2006, the Besen family sold a half share and the management rights to its Highpoint Shopping Centre for a mammoth $621 million.
Hannan family After an emotional sale process, the Hannan family sold the newspaper, magazine and online assets of its Federal Publishing Company to News Corporation for an undisclosed sum, believed to be about $340 million.
Knowles family The Knowles family company, Australian Retirement Communities, sold a portfolio of 17 existing retirement villages (home to nearly 4000 residents), three villages under development and six villages in the planning stages to listed property company Stockland in February for $329 million.
Smorgon family In June 2006, the Smorgon family agreed to sell its $550 million stake in steel company Smorgon Steel into the $1.6 billion takeover by rival OneSteel. Smorgon Steel chairman Graham Smorgon said the decision was an emotional one. "But it was a business judgement that needed to be made."
The business of living
What next? That is the question that has confronted many Rich 200 members who have sold their businesses in the past year.
Greg Will, a partner at PricewaterhouseCoopers who works with wealthy clients, says it can be a difficult question for prosperous people who leave their business. "Having a large bank balance is great, but what are you going to do the next day?"
John Van Lieshout, who sold his Super A-Mart furniture for $500 million last year, is representative of many Rich 200 members who say that selling their business allows them to indulge passions such as sailing and golf. "It's a good life. I should have done this years ago really," he jokes.
Will says retirement sounds easy, but it can be very hard for men and women used to the intense lifestyle associated with running a business. Many struggle to find something to fill in their spare time. In most cases, the only thing that helps is finding another company to channel their energies into. "They get some little business interest that soon takes over and the cycle starts again," Will says.
Van Lieshout has plenty to keep him busy. He has retained the properties Super A-Mart sits on, a portfolio believed to be worth about $400 million. He has a small property development firm called Unison and he has established a small office with five staff to examine other investment opportunities. "I'm doing an apprenticeship in trying to learn about money markets and shares and investments," Van Lieshout says. "It is complex and I don't have a lot of education so it takes me a while to understand, but I am enjoying the learning process. He keeps an eye on the Super A-Mart business - it is, after all, his biggest tenant - but says he does not want to interfere with the new owners, the private equity firm Ironbridge Capital.
Van Lieshout, who prided himself on running a very tight ship at Super A-Mart, has caught up with one bit of scuttlebutt that makes him chuckle. "I have heard them say that it is one of the few businesses they haven't been able to trim any costs from."
