Much has been written about the Coles sale fiasco, but arguably the biggest takeaway for corporate Australia, and specifically those companies that view themselves as private equity targets, is that there is no such thing as a private equity sure thing.

It has hopefully helped the more starry-eyed members of the Australian financial community wake up to the reality that extreme leverage, in a rising rates environment, is not conducive to private equity funds paying over-the top multiples for average assets in Australia.

This is particularly true when the Australian market has only in recent years appeared on the radar screens of the big boys of global private equity, due to a once in a generation avalanche of global liquidity.

Anyone who has witnessed the rise, fall, dismembering and rise again of various Global Investment Banks’ presence in the Australian market over the past two decades would understand the “love you and leave you” view of Australia amongst many global financial powerhouses.

On a bigger picture level, the increased nervousness around borrowing enormous amounts of money highlights another stark reality for Australian governments, policymakers and investors which is often overlooked in the “China fever” affecting nearly everyone in Australia.

This truth is the performance of the Australian market, fund managers, your superannuation fund and government revenue estimates remains heavily dependant on what the US consumer does – specifically whether or not Americans can pay their mortgage.

That may not be popular with many Americaphobes in Australia and fund managers who tout their “investment style” as the sole reason, but with the US consumer still accounting for an astonishing 15% of global GDP, that is the global economic reality.

In many ways this linkage between a rise in defaults amongst homeowners in Tampa, Florida and private equity players in Sydney deciding to abandon overpriced deals highlights the double-or-nothing reality of economic globalization.

When things are going well in China, America, the UK and Australia, they are going extremely well.

If things start to go very badly in US mortgage land, then sell your Perth property and extract that gold tooth filling from grandma as quickly as you can.

Get Crikey for $1 a week.

Lockdowns are over and BBQs are back! At last, we get to talk to people in real life. But conversation topics outside COVID are so thin on the ground.

Join Crikey and we’ll give you something to talk about. Get your first 12 weeks for $12 to get stories, analysis and BBQ stoppers you won’t see anywhere else.

Peter Fray
Peter Fray
Editor-in-chief of Crikey
12 weeks for just $12.