RICH PICKINGS: Running with the bulls

As the Australian economy perks up, the time is ripe for canny rich-listers to multiply their millions. Here are some of their potential strategies.

With the Australian economy set to return to something like normal growth in 2010, there’s little doubt that Australia’s richest entrepreneurs will be looking to reclaim some lost ground.

These early stages of recovery should throw up some good opportunities. Many of our richest entrepreneurs still have cash ready to deploy, and asset prices in many sectors are only starting to recover.

But how and where will the rich start spending? Time to look at a few of the main strategies:

Property

The sharp decline in property prices lured many wealthy entrepreneurs into the market including Paul Little from Toll, Queensland entrepreneurs John Van Lieshout and Clive Palmer, the Roberts family and Computershare founder Chris Morris, who has invested heavily in pubs.

Expect this trend to continue in 2010. Commercial property prices remain subdued in most sectors and most areas of Australia, so canny buyers will still be able to grab bargains from over-geared owners. Van Lieshout and Andrew Roberts appear to be particularly keen to expand their portfolios.

It will also be interesting to see whether any local entrepreneurs wade into the US market, where property prices have also been smashed in the last 18 months – there could be some real bargains over there for smart buyers.

Consolidation

Merger and acquisition activity is expected to increase sharply in 2010 (off a very low base) and you can bet that some of our richest are on the prowl.

A few candidates stand out. Premier Investments chairman and retail veteran Solomon Lew is sitting on a pile of cash ($300 million, according to the group's website) but has yet to be tempted by any assets in the retail space. Are there clothing chains out there that might tempt him?

James Packer is also cashed up after dumping a number of assets in the second half of the year, including a stake in Challenger Financial Services, for around $400 million, and his stake in Sunland Development Group, for just under $30 million. There has been speculation he might attempt to take Crown Limited private, but could another gambling asset take his fancy?

Frank Lowy's Westfield is another company seen as having the capacity for making deals.

Selling out

While some richies might be buying, expect to see others selling parts of their empire, either through a trade sale or an IPO.

Clive Palmer appears likely to be one of the first out of the blocks with the float of his company Resourcehouse in Hong Kong, which could be worth as much as $10 billion. According to reports, Palmer won’t be pocketing the proceeds, instead using them to develop mining projects and buy new ones.

Packer’s recent sell-off suggests he might look to sell some of his remaining private assets, including the Pretty Girl Fashion business and a stake in cosmetics business Jurlique.

After that, it’s hard to pinpoint which entrepreneurs will be putting assets on the block, but the gentle rise in asset prices, the new heat in the IPO market and the re-emergence of private equity could lead to some sales. Surveys of high net worth individuals and family companies have shown that succession plans were put on hold for the last 12 months, so expect these to be dusted off.

Heading overseas

The strength of the Australian dollar and the weaknesses in overseas markets such as Europe and North America mean Australian entrepreneurs (and indeed companies) could try and find cheap acquisition targets offshore this year.

Indeed, we are already seeing this. In the past week, Paul Ramsay’s Ramsay Health Care has made acquisitions in Europe, while Perth-based entrepreneur Rod Jones of education company Navitas has signed deals with three US universities and is in talks with another two.

Paul Little also said last year that he was interested in looking at Asian equities, given the strength of the Australian dollar.

Technology

A recent Forbes magazine round-up of the Americans who made money in 2009 highlighted the tech sector as a big winner: Google founders Larry Page and Sergey Brin made $US8.4 billion and $US8.2 billion respectively across the year; Oracle’s Larry Ellison made $US7.9 billion; Bill Gates made $US7.6 billion; and Amazon’s Jeff Bezos made $US7.3 billion.

Clearly these tech stocks have run hard, but there’s probably likely to be a few more big winners in 2010, particularly if, as expected, Facebook chief Mark Zuckerberg launches an IPO. If Twitter moves towards a float (this might be a bit further off than 2010) then Biz Stone could also join the ranks of the super rich.

Resources

The resources sector is expected to underpin the Australian economy and sharemarket in 2010, so it’s hardly surprising that wealthy entrepreneurs will be getting a slice of the action here.

One of the men to watch is Ken Talbot, the founder of Macarthur Coal who has spent most of the year in the headlines for the wrong reasons – he is currently facing corruption charges and will face trial in August.

However, since selling out of Macarthur he has become a gun resources sector investor, with stakes in well performed companies such as Karoon Gas (up almost three-fold in the last 12 months) and Sundance Resources (up over 50 per cent).

Towards the end of last year he sold a stake in Riversdale Mining for around $190 million, and floated plans to invest in physical mines rather than stocks. Watch this space.

Climate change

We’ve been saying it for years, but 2010 might be the year that the rich really move into the green technology sector. Sir Richard Branson and George Soros have talked the biggest talk, both promising to sink billions into the sector – although we haven’t seen a lot in the way of actual investments.

The Copenhagen summit didn’t exactly provide a lot of motivation to move quickly, but there’s little doubt that areas such as carbon trading, clean energy and energy efficiency remain on the watch-lists of long-term investors.