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Profiler Talk: Next Capital’s James Murphy on development and sale of Forest Coach Lines

Australian private equity firm Next Capital sold its portfolio company Forest Coach Lines to Singapore-based transportation company ComfortDelGro Corporation [SGX: C52] earlier in August for AUD 110m (USD 81.8m).


James Murphy, partner at Next Capital, retraces the history of the PE manager’s involvement in the industry and discusses the rationale of the initial investment and how Next Capital transformed the business. Murphy’s deal profile can be found hereFor an overview of Next Capital’s portfolio companies, please click here.

 Next Capital’s investment in Forest Coach Lines in 2014 followed its previous success with New Zealand bus business Go Bus, which the PE owner exited in the same year after more than doubling the company’s earnings during its two-year tenure. Driven by the government’s push for more efficiency and corporatization in the transport space, Next Capital recognized that its strategy in building Go Bus could be “replicated” in Australia where the bus transport market was more fragmented than New Zealand, albeit with more robust population growth. Spot the opportunity.

Next Capital did a “market mapping” in Australia, which identified Forest as “the best potential” in the market because of its location in Sydney, its reputation as a great bus operator, as well as its future growth prospects, Murphy said Forest was one of Australia’s oldest family owned bus businesses, started by brothers Trevor and Eric Royal in 1930 in the northern suburbs of Sydney. It was managed by the family’s third generation including David Royle, the joint CEO, at the time Next Capital looked at it. Meanwhile, KPMG was mandated by the founding Royle family to run a sale process, while Sydney- based advisory firm Greenstone was working with David to buy out the whole business, Murphy noted. Next Capital then engaged with Greenstone to partner with David, who owned a small stake, and participated in the KPMG-led process, he said.

Make the deal

There were other trade buyers vying for Forest in the KPMG process, but the Royle family took the view that they would rather sell to a consortium including David so that the business could stay in family hands for longer, according to Murphy.

Next Capital also brought in Marcus Gerbich to the deal, who, as the original owner of Go Bus, had great experience of growing the New Zealand business along with the PE investor.

“David (Royle) was looking for someone with the capital and someone with experience,” Murphy said. “That is why Marcus and Next Capital’s experience with Go Bus and more broadly in growing family run businesses was critical to the (Forest) deal.”

On completion of the deal in December 2014, Next Capital bought an about 80% stake in Forest, while Gerbich came in as an executive chairman with about 5% and David Royal, the CEO, ended up with around 15%, according to Murphy.

Active management

Next Capital has been a “very active manager” in Forest, as with its other portfolio companies, said Murphy. The PE team spoke to the CEO and the chairman every couple of days and helped the company with recruitment, operation systems, banking, as well as strategic initiatives including acquisitions. It built a new management team within Forest, with every single manager that reports to the CEO (David) being a new hire, including COO, CFO, engineering manager, head of charter business, depot manager and HR manager, Murphy continued.

The company enhanced its capability in the Terry Hills depot, from which it could remotely manage businesses around Coffs Harbour in the north coast of New South Wales (NSW) and in New England in the northwest of NSW, he said. Apart from public transport, the PE manager also built up the charter business by engaging with private schools to strengthen the division.

Strategic acquisitions

Consolidation had been a complementary strategy in growing Forest, just as the PE investor did with Go Bus in New Zealand. Acquisition opportunities often came from bus companies with baby boomer owners looking to retire, Murphy said.

Backed by the PE owner, Forest made four acquisitions in NSW including Manly Coaches, a charter business in Sydney’s lower north shore, and three regional businesses: Wolters Bus and Coach Service, Sawtell Coaches, and Ryans Bus Service. The PE partner would not specify the acquisition values.

For Forest, the four acquisitions are strategic assets that bring in long-term contracts, he noted. Forest was also able to implement its own operation system in those businesses and therefore reduce cost and drive efficiency, he added.

Local market

Australia’s bus transport market is still highly fragmented, with the top 10 operators having about one third of the market and a long tail of approximately 1,000 operators, Murphy explained. It is hard to quantify the exact size of the market as there are different components including scheduled, charter, tourist coach, etc., he said. There is no obvious competitor to Forest in NSW, he noted. New government contracts were awarded about 18 months ago in rural and regional NSW, while in Victoria and Queensland new contracts are currently being finalized, Murphy said. This could drive a new wave of consolidation in the market, he said.

Exit to “logical buyer”

Next Capital has always known that a number of trade buyers would be interested in Forest, including Singapore’s ComfortDelgro [SGX: C52] that operates across Australia and has made a couple of acquisitions over the past few years, according to Murphy. The PE owner appointed Melbourne-based Heritage Finance earlier this year, which engaged with a limited number of strategic buyers. “It’s fair to say ComfortDelgro was the most interested,” said Murphy, declining to comment on other parties.

The process took a couple of months and ran smoothly as the due diligence was relatively simple, he said. ComfortDelgro knew the asset, the area, as well as the contracts and appreciated the strategic positioning of Forest, according to Murphy.


Forest went from AUD 6m in EBITDA when Next Capital invested to more than AUD 15m earnings at the exit, according to Murphy.

ComfortDelgro is acquiring the business for AUD 110m, according to a stock exchange announcement on 7 August.


Next Capital used Heritage Finance (led by Candice Hendra) as financial advisor and MinterEllison (led by Glen Sauer) for legal service. PwC advised tax issues and did the financial due diligence.

ComfortDelgro used its internal team for M&A and Lander & Rogers for legal service. The fund

The exit of Forest was the second out of Next Capital’s AUD 285m Fund III, Murphy said.

Next Capital has raised three funds so far, all under AUD 300m, according to Mergermarket data. It is understood that 80% of the Fund III has been deployed now.

Murphy on Profiler

Murphy, a former banker with UBS, has been with Next Capital since 2007 and became the partner in 2014.

He has been involved in Next Capital’s investments in Scottish Pacific, Infinite Care, Forest Coach Lines and Lynch’s flowers.


Latest News

Next Capital Snaps Up iseek Communications In Data Centre Play

Mid-tier private equity firm Next Capital has made a bet on Brisbane-based iseek Communications in a deal valuing the data storage and cloud services provider at $60 million including debt.

iseek is an Australian-owned, independent data storage provider focused on data storage, cloud and connectivity services.

The company operates two data centres in Brisbane and one in Sydney. It has annual revenue of about $34 million, and has been profitable for a number of years. It is hoping to triple its earnings over the next three years, underpinned by two new data centres being built.

iseek currently is building a data centre in far north Queensland, which will open in the first quarter next year, while a third data centre in Brisbane is slated to open by 2020. The Sydney-based buyout firm has purchased a controlling stake of 51 per cent, however, it is acting in partnership with founder Jason Gomersall, who started the business 20 years ago and was previously 100 per cent owner.

The data centre business is its biggest earner and has customers including Queensland state government or government-owned organisations, as well as Top 200 listed companies.

Mr Gomersall explained the data centres host the technology infrastructure for cloud service providers, network providers and enterprise clients, but is not responsible for cyber security or network security.

Next’s investment comes amid heightened interest in the sector, with listed data centre operator NextDC on Friday flagging it will invest $2.25 billion in its three new sites in Melbourne, Sydney and Perth. Other transactions in recent months include the $1 billion sale of Metronode to US data centre giant Equinix. In 2016, Quadrant Private Equity and Infratil, which is managed by Morrison & Co, cut an $800 million deal for Canberra Data Centres.

Next partner James Murphy said recent deals show the strength of the segment.

“Thematically a lot is happening in this space,” he said. “People are trying to find capacity, and you have got the big players like the Amazons and Apples looking to provide their cloud offering.”

Next is building the iseek business with the view of a public float down the track. “The thematic is well received by equity markets, it has high returns on capital and sticky long-term cashflow,” Mr Murphy said.

iseek has pursued a leasehold model for its two greenfield sites, where a landlord develops the building and iseek will fit it out at a cost of between $10 million to $20 million. Mr Murphy confirmed it has long-term leases with security over the sites.

Next’s founding partner Patrick Elliott said there is plenty of growth in the sector with only 30 per cent of businesses outsourcing data centre management.

“We did a lot of work around the sector and demand for storage across the spectrum from data centres to cloud is exploding,” he said. “On the supply side there is limited representatives that can deliver on the level of service that Jason has provided.”

Mr Gomersall, who prior to starting iseek owned two OPTUS mobile franchisee shops, said iseek has a great track record in terms of building and operating these facilities.

Mr Gomersall added that the business is defensive, and not bothered by the recent political circus that took over Canberra.  “Demand for the sector seems to be there separately from what’s happening politically, thankfully we are fairly immune as to what’s happening at that level,” he said. “During the GFC we didn’t see any of our customers including miners and mining services did not cut business, while cutting other services in their business. We are essential services.”

In the beginning, iseek was an ISP to the corporate sector. At that time there were no commercial data centres. Some corporate customers took space with him, and in that process Mr Gomersall built iseek’s first data centre.

Given its leading position in Queensland, Mr Gomersall engaged PwC Advisory to find him a partner for his next leg of growth.

The investment will be made via the Next Capital III fund, which has deployed about 75 per cent of its capital, with one or two more investments to come. iseek is the second investment in 2018 following artisan bakery Noisette.

Fundraising for its Fund IV is kicking into high gear, and sources said it is likely to have a first close by November or December. Its Fund III should be a “cracking fund”, so Fund IV should get raised relatively easily, and will be around the $350 million mark, sources said.

Next founding partner Sandy Lockhart is likely to still be involved as chairman, but not as a day-to-day deal partner.

Full article access here:


Latest News

Next Capital completed the acquisition of Noisette Bakery

In January 2018 Next Capital completed the acquisition of Noisette Bakery (“Noisette”), a Melbourne based artisanal commercial bakery.

Noisette is Victoria’s largest wholesale artisanal baker, supplying 1,350 customers throughout Melbourne and regional Victoria. The Business sells a range of cakes and pastries (predominantly croissants) to a diversified range of customers while also operating two retail sites in port Melbourne and Bentleigh.   Noisette has a unique baking and production process, balancing manual handmade steps and automated processes, allowing it to provide a quality artisanal product across 250 SKUs. The wholesale business operates one of the largest baked fresh daily operations in Australia, running 24/7 from a 2,800 sqm production facility in Dandenong, Victoria. The customer base is highly diversified with customers include cafés, restaurants, hotels, food service and independent supermarkets.

Link to Press Article:

“Next Capital closes in on fancy bread maker”.  Australian Financial Review 16 Nov 2017




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Tuesday 19 September 2017

Moelis Australia Acquires Controlling Interest in Infinite Care

Scale Investment in Australian Aged Care Sector

Sydney, 19 September 2017 – Moelis Australia Limited (“Moelis Australia”) (ASX: MOE) has entered into an agreement with Next Capital to acquire a controlling interest in Infinite Care, an operator and developer of aged care facilities in Australia. The acquisition involves Moelis Australia paying $45.4 million for a 70% interest in Infinite Care in addition to the establishment of the Moelis Australia Healthcare REIT. Infinite Care’s founding management will retain its 30% stake in Infinite Care.

Infinite Care is an industry leader in the delivery of responsive, holistic and innovative care and services to the ageing community. Infinite Care currently operates a portfolio of 5 recently refurbished aged care facilities and has a development pipeline of ~1,500 bed licenses across 13 to be developed facilities in areas of aged care undersupply.

Moelis Australia will hold its interest in Infinite Care in a newly established managed fund, the Moelis Australia Aged Care Fund (“Infinite Fund”). Moelis Australia intends to offer third party investors the opportunity to co-invest in the Infinite Fund with Moelis Australia retaining a co-investment stake of not less than 10%. Founders and Joint Managing Directors of Infinite Care, Chris Stride and Tony Partridge will continue to run the business.

The Infinite Fund is targeting a total return to third-party co-investors of 20%+ per annum over a 4 year term. The Infinite Fund will provide investors with exposure to the attractive fundamentals of the Australian aged care sector via co-investment in an established operator with a large development pipeline. Profitable and cash flow generative, Infinite Care has an existing ~400 bed platform, an established head office function and a substantial greenfield development pipeline of ~1,500 bed licenses across 13 to be developed facilities in areas of aged care undersupply. Importantly, Infinite Care has a highly experienced and financially aligned management team, with a strong track record in aged care.

Fully developed, Infinite Care’s 1,500 bed pipeline of new aged care facilities should have a total value in excess of $450 million.

As a component of the transaction the Moelis Australia Healthcare REIT (“REIT”) will acquire the freehold real estate and provide development funding for two of Infinite Care’s new aged care facility developments. The initial investment of $44.5 million in equity to acquire and fund these assets will be fully subscribed by funds managed by Moelis Australia. The REIT is forecast to deliver investors a distribution yield of approximately 7% per annum and total return of 10% per annum. Moelis Australia will manage the REIT. The REIT has potential to grow over time as new facilities are acquired and/or developed.

Andrew Pridham, Chief Executive Officer of Moelis Australia said “We are excited by the opportunity to invest in the Australian aged care sector and offer our investors exposure to an industry which we believe has very favourable fundamentals, driven by Australia’s rapidly aging population and looming undersupply of aged care facilities.

We believe Infinite Care is a quality business with significant potential for growth. It is led by a highly experienced and aligned management team and we look forward to supporting Chris and Tony over the coming years as they grow the business.

This investment in the Australian aged care sector is consistent with our strategy of investing in what we believe are attractive industry segments characterised by sound macro fundamentals, underlying real estate exposure and quality management teams.

This transaction highlights our ability to originate attractive high return opportunities for clients of our asset management business and Moelis Australia, and we look forward to growing our activities in the aged care sector over time.”

The transaction is conditional on FIRB approval and standard closing conditions and is expected to complete in late October 2017.

Scottish Pacific


Scottish Pacific:

Next Capital successfully completed an exit of half of its stake in Scottish Pacific through an IPO on the ASX in July 2016. The business was floated for a Market Value of nearly $450M, realising an upfront return of approximately 2x for its investors and management, with the potential for material additional returns through monetisation of Next Capital’s remaining 50% stake. The business is well placed to continue its strong growth given:

  • ScotPac’s leading market position in a niche segment with significant barriers to entry;
  • low-risk growth potential associated with the business’ ability to leverage strong underlying long-term demand in the core debtor finance market;
  • significant incremental growth potential associated with new products and channels in development; and
  • a very strong, experienced and incentivised management team, with a history of delivering strong year-on-year growth through economic and credit cycles.

Alpha Group


Alpha Group:

Next Capital successfully completes the majority acquisition of Alpha Group (“Alpha”).

Next Capital completed the acquisition of a controlling interest in Alpha in April 2017. Established in 2006 as a car hire business, today Alpha Group is a provider of car leases, whilst also operating synergistic car hire and car parking businesses.

Next Capital’s investment has been predicated on the following factors:

  • leading market position in a niche segment with significant barriers to entry and a strong value proposition;
  • attractive platform asset with three synergistic divisions providing a basis to generate enhanced returns to the Group;
  • significant growth prospects, with actionable opportunities to increase penetration in existing markets as well as further geographic expansion, utilising new sales channels, servicing other markets as well as scale benefits delivering cost synergies; and
  • highly experienced and proven management team.




Next Capital successfully completed the acquisition of a controlling interest in Funlab in December 2016. Funlab creates, develops and operates out-of-home entertainment and leisure venues. The Business currently services over three million customers per annum, across three concepts from 17+ locations on Australia’s eastern seaboard:

  • Strike Bowling bars: social bowling, escape rooms, laser tag, karaoke, pool and a licenced bar and kitchen;
  • Sky Zone indoor trampoline parks are operated under a franchise agreement with US franchisor; and
  • Holey Moley: Australia’s first putt putt mini-golf with full service licenced bar

The out of-home leisure and entertainment industry is benefitting from a global trend, where consumers are spending more of their disposable income on experiences and less on goods. Funlab delivers a superior offering relative to its competitors in both the bowling bar and trampoline park markets. The business’ newest offering, Holey Moley, is a new concept in Australia with no competitors to date.

Lynch Holdings


Lynch Group Holdings:

Next Capital successfully completes the majority acquisition of Lynch Group Holdings (“Lynch”).

Next Capital completed the acquisition of a controlling interest in Lynch in November 2015. Lynch is Australia’s leading integrated supplier, wholesaler and merchandiser of fresh cut flowers and potted plants. Lynch also operates flower farming and processing assets in Kunming, China as well as three farms in Australia which grow and supply specialty flower and potted products to support its range.

Lynch is Australia’s only fully integrated floral and potted plant operator. Its operations span and control all aspects of the fresh flower and potted plant value chain, which positions Lynch as the clear industry leader with strong market share in all the key markets in which it competes. Lynch is vertically integrated across sourcing (third party and internal), design and processing, distribution / merchandising and sales The core business, which services the mass market retail channel, has a leading market position which provides a strong core growth proposition and the opportunity to execute a range of domestic and international growth initiatives.

IPO of Vitaco Holdings


Next Capital successfully completed the majority exit of its investment in Vitaco through an IPO on the ASX in September 2015. The business was floated for an Enterprise Value of $332M generating a return of 3.2x for its investors and management. The business is well placed to continue its strong growth given:

  • Leading market positions with established and trusted brands like Healtheries, Nutra-Life, Aussie Bodies and Musashi
  • Exposure to attractive categories with multiple avenues for growth including continued new product development, expansion of distribution points, margin expansion through the in-sourcing of products and exposure to high growth regions like China
  • Diversified product portfolio with multiple channels to market
  • Operates a vertically integrated business model that develops, manufactures, distributes and markets its products, with capacity to support future growth
  • Highly experienced management team