The private equity industry has been misrepresented in the community and press, fuelled by myths and the use of words like 'barbarians' Australian Venture Capital Association (AVCAL) chief executive Katherine Woodthorpe claimed this week.
"The use of the term barbarians is based on a thirty year old book. The world has moved on, but not all of the commentators it seems," Woodthorpe told a Sydney audience this week.
"Private equity is invited in. They don't need to bludgeon down the gate. When the board of Coles rejected the deal put forward by private equity managers they simply walked away," she said.
Private equity firm Kohlberg Kravis Roberts led a consortium that attempted to buy out retailer Coles in September last year for $18 billion. The $14.50 per share offer was rejected by the supermarket chain, which called it opportunistic.
Woodthorpe also quoted research from global consultant McKinsey.
"The study found that after private equity was invested in a company, the business delivered better margins, increased their sales and overall an entrepreneurial spirit was developed," she said.
Fighting back on suggestions that private equity transactions take on a high level of debt, Woodthorpe said this was another myth.
"All debt is borrowed at a fixed interest rate and borrowings are paid from day one. Our studies have shown that the average level of debt in a private equity transaction is 70 per cent, which is much less than the 90 per cent level present in deals from the 1990s," she said.
AMP Capital Investors chief economist Shane Oliver is, however, more cautious.
"Which ever way you look at it, a company does take on more debt after a private equity buyout. Therefore there is more risk on board for the company. Nevertheless while private equity can involve more risk it does deliver higher returns as well," he said.
