Private capital is significantly impacting the Australian sharemarket, with private equity firms increasingly targeting “unloved ASX industrials.” Sweden’s EQT and Canada’s Brookfield recently lobbed bids for Cleanaway and Reliance Worldwide, valued at $9.4 billion and $4.1 billion respectively. This week marked critical junctures. Cleanaway’s nine-week exclusive due-diligence period with EQT concluded Monday, allowing engagement with other potential bidders. Tuesday saw the end of Brookfield’s four-week exclusivity for Reliance Worldwide, requiring a decision on a binding offer.
Market observers are closely watching the Reliance Worldwide situation, especially after pension giant AustralianSuper promptly lifted its stake from 10.4 per cent to 15 per cent. While this sparks speculation of a potential showdown, reminiscent of AustralianSuper’s role in blocking Brookfield’s Origin takeover, some traders believe the super fund anticipates competing bids, positioning to capitalise. Reliance shares trading 10 per cent below Brookfield’s $4.75 offer suggests market confidence in alternative offers. Cleanaway stock, however, trading 18 per cent below EQT’s $3.13 indicative offer, implies less conviction in improved bids.
This surge in private equity activity raises questions about the Australian market’s structure and a potential “clear-out” of diverse industrials from the ASX, which is heavily weighted towards banks and miners. Schroders portfolio manager Martin Conlon highlights that private equity bidding for public companies signals skewed valuations, with firms acquiring businesses at their “peak vulnerability.” These vulnerabilities stem from factors like Cleanaway’s past management challenges and Reliance’s cyclical low amidst rising costs. This trend prompts discussion on long-term investment, market diversity, and board duties in a landscape where depressed public valuations attract private capital.
