Resources giants BHP Billiton and Rio Tinto have topped a list of Australian companies most vulnerable to private equity takeovers.
The rankings were released this week by Citigroup Research, which also included energy firm Santos, explosives maker Orica, leisure group Tabcorp, miner Zinifex, retailer Coles Group and Woodside Petroleum in its top 10 most vulnerable.
Coles Group is already the subject of a private equity backed $20 billion bid headed by Australia's second largest retailer Wesfarmers.
"Strong profitability places a number of materials companies at the top of our private equity attractiveness screens . . . The excellent investment arithmetic of BHP Billiton and Rio Tinto is also thrown into relief by this approach," the research said.
Citigroup also identified so called emerging companies such as oil and gas firm Anzon Australia, miner Oxiana and Jubilee Mines as ripe for a private equity takeover.
"Our rankings are based on four factors we believe are central to private equity considerations. Predictability, sustainability and cyclicality of earnings, high net interest cover, low valuations and scope for Earnings before Interest and Tax upside," the report said.
Citigroup also highlighted a number of factors that made companies unattractive to private equity firms.
"We have identified stocks where there are major impediments such as controlling or major shareholders, asbestos or probity issues, shareholder limits and resource companies - reflective of their significant cyclicality."
Of Australia's top 50 companies, those least attractive to private equity firms included childcare business ABC Learning, toll road firm Transurban and Babcock and Brown Infrastructure.
It added, however, that recent experience showed that such impediments can prove an ineffective deterrent.
In the first quarter of 2007 $3.4 billion worth of private equity deals were announced in Australia, up from $1.5 billion for the corresponding period in 2006. Over $19 billion worth of private equity deals were announced in 2006.
