Signs of Caution in Private Equity?


Tracy sees one private-equity consortium outbid another private-equity consortium

to win Home Depot’s HD Supply business for $10 billion, and she smells weakness:

There has been talk that private-equity firms are exercising more caution

in their deal making. Given that half of the potential bidders ducked out

of this deal, that caution is becoming more apparent.

I think there may indeed be some newfound caution in the private-equity market:

after bandying

around numbers in the $6 billion to $8 billion range for the combined Jaguar

and Land Rover, for instance, analysts are now soft-pedalling,

saying that the UK car companies might go for just $1.5 billion. I guess we’ll


And there are indications of caution in the Home Depot sale, too. The final

price tag of $10 billion is large, but it’s well short of the $13 billion that

some observers expected the unit to fetch when its sale was announced in February.

On the other hand, the fact that some private-equity companies dropped out

of the bidding altogether should not be taken as a sign of weakness. It’s a

known fact that private-equity shops hate to bid against each other in the first

place, and if there are half a dozen consortiums circling a potential acquisition,

most of them are naturally going to drop out rather than wade into a bidding

war. Much better that another shop pays too little than that you yourself pay

too much.

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