Buyout firm CD&R sees subdued sector for a year
DAVOS, Switzerland (Reuters) - Dealmaking in the private equity sector will take about a year to improve, driven by signs the credit crunch is easing and less uncertainty on the economic outlook, an official at Clayton, Dubilier & Rice said.
"If there are some deals that are getting done, most of them are smaller in nature -- 1 to 2 billion euros -- and are seen to be focused on businesses that are very stable, with not having any economic sensitivity to them," David Novak, a partner at the private equity firm, told Reuters.
The cost of financing leveraged buyouts has risen since the middle of last year when defaults on subprime loans caused turmoil in the credit and equity markets, prompting a number of deals to fail.
"We clearly view that this will be a 6 to 12 month phenomenon as two things happen," Novak said on the sidelines of the annual meeting of the World Economic Forum in the Swiss resort of Davos.
"One, everyone gets a better sense of what is going to happen in the global macro economic environment. And two, when the banks work out their liquidity issues, so they start lending together," Novak said.
"However in the scheme of private equity, to have 6 to 12 months' slowdown is not a big deal. Some of the best private equity deals have been made after periods of slowdown."
New York-based CD&R manages about $10 billion in equity and invests mainly in subsidiaries or units of large global companies across a range of industries.
The private equity company has invested in firms including car rental company Hertz (HTZ.N) and French electrical products distributor Rexel (RXL.PA).
"Everyone's trying to figure out what they believe the macro environment is going to be and how that will impact their business, and in doing so that leads to contemplations about portfolios," said Novak.
Cutting costs is a basic ingredient of a leveraged buyout, as private equity firms need to wring out profits and boost cash flows to pay down debt payments.
For full coverage, blogs and TV from Davos see: here
(editing by David Stamp)
