A report from law firm MinterEllison has revealed that private equity (PE) jumped from a mere 4 per cent of all merger and acquisition activity in financial year 2015 to 20 per cent last financial year.

In particular, there was a large number of "exits" by private equity owners, with many occurring through sales to other companies or investors rather than through a public share float.

The report found there were 46 private equity exits in financial year 2016, worth an average of $393 million, and with the PE owners typically having held the firms for a little over five-and-a-half-years.

The healthcare sector was a key growth area, with MinterEllison private equity partner Ricky Casali pointing to the $1.7 billion sale of radiation treatment firm Genesis Care by KKR to Macquarie/China Resources and the $938 million sale of private hospital operator Healthe Care by Archer Capital to China's Luye Medical Group.

"PE activity in the healthcare sector increased substantially in the past financial year," he said.

"PE was also very active on exits in this sector, particularly to Chinese buyers."
There was also interest in technology firms, especially health-related ones, with Affinity Equity Partners buying the MedicalDirector software business from Primary Health Care for $155 million.

Services sector likely to remain in hot demand

Mr Casali said the social services sectors are likely to keep dominating takeover activity in the current financial year.

"Home care is the hot trend, with Government policy favouring consumer directed care," he forecast.

"This has led to increased interest by PE in allied health services in both the aged care and disability sectors, with the National Disability Insurance Scheme also creating opportunities for PE."

Mr Casali also expects childcare to do well.

"Favourable Government policy with non-means tested child care rebates and benefits and a fragmented industry will continue to drive consolidation," he added.

The report predicts that other services businesses will be attractive for buyers, especially experiential ones such as tourism, hospitality, fitness and wellness.

However, Mr Casali is not expecting life to be easy for Australian private equity firms on the hunt for acquisitions.