BusinessWeek just ran a couple of articles on Clayton, Dubilier & Rice, the private equity firm that joined with Bain Capital and the Carlyle Group to buy HD Supply. Due to a tightening in the credit markets, the trio will pay $8.5 billion instead of the original $10.3 billion price for the Home Depot wholesale unit.
The first BW article was aptly titled, "Private Equity's White-Knuckle Deal," and the other focuses on CD&R's chairman Joseph L. Rice III, 75, who discusses how his firm years ago fell into the trap of buying into industries it did not understand and "embraced debt too enthusiastically." (Read article)
"White-Knuckle Deal" recounts in detail how CD&R salvaged the HD Supply buyout, providing a glimmer of hope to other firms currently in the middle of big deals that a sudden tightening of credit has jeopardized. The lead: "What does a buyout baron do when the business climate changes dramatically between the announcement of a major deal and the closing?" Good question. A lot of private equity firms are probably asking similar questions right now. (Read article)
As MDM reports in its most recent issue, tight credit markets are affecting sizable deals in progress and may dampen historically high valuations. Will private equity slow down the deal-making? That's unlikely. A managing director of one firm tells MDM that firms still have a large chunk of cash that needs to be invested, even if deal terms aren't as favorable to the seller as they have been over the past two years.
A final note of interest to distributors competing with HD Supply: BusinessWeek reports the private equity firm trio has "ambitious plans" for HD Supply, according to this article - increase HD Supply's offshore sourcing, restructure its warehouse system and boost its private-label business.
