* KKR prepares to submit final bid by Feb.21 -sources
* Advent out, TPG-Onex pair lags on due diligence -sources
* Company exploring leveraged recap, spoke to CCMP -sources
SAN FRANCISCO/NEW YORK, Feb 11 (Reuters) - Gardner Denver Inc is considering leveraged recapitalization as an alternative, as efforts to sell itself to private equity snag over price and the business outlook declines for the industrial machinery maker, people familiar with the matter said on Monday.
Buyout firm KKR Co & LP is preparing to submit a final takeover offer for Gardner Denver by the deadline of Feb. 21, but a few other private equity bidders have either dropped out or are no longer seriously pursuing a deal, the people said.
Buyout firm Advent International has put its pencils down, while the partnership of TPG Capital LP and Onex Corp has not done enough due diligence that would allow it to make a final offer next week, the people said.
With the auction showing signs of weakening, Gardner Denver is looking at alternative transactions and has held talks with buyout firm CCMP Capital about investing as part of a leveraged recapitalization, they said. While no final decision has been made, CCMP is unlikely to move forward with such a deal, one of the people said.
There is also growing skepticism among private equity firms about whether Gardner Denver is worth more than where its shares trade currently, they added. The stock fell 2.3 percent to $68.83 on the New York Stock Exchange, valuing the company at slightly under $3.5 billion.
The company went back to private equity bidders after talks to sell itself to industry rival SPX Corp broke down in late December amid investor skepticism about the logic of such a merger.
Gardner Denver, which makes compressors, pumps and vacuum products for industrial uses, decided to explore a sale late last year following months of pressure from activist investor ValueAct Capital LLC, which acquired a roughly 5 percent stake.
But the auction process proved increasingly challenging. As potential buyers carried out advanced due diligence, they got more concerned about declining orders at Gardner Denver, the sources said.
The Wayne, Pennsylvania-based company has grappled with lower demand for petroleum and industrial pumps, which pressured its engineered products group. That group reported a 20 percent drop in revenue in the third quarter.
Private equity firms in November submitted first-round bids in the mid-to-high 70s per share range, but any final takeover bids now would fall short of the range and come close to the company's current trading price, the people said.
Representatives for TPG, Onex, KKR, CCMP and Advent declined to comment or did not immediately respond to requests for comment. Gardner Denver declined to comment. The sources asked not to be named because the matter is not public.