Posted by Dana Cimilluca, June 25, 2007, WSJ DealJournal:
The recent lull in merger activity could mean one of two things. Either the market is pausing before an assault on yet another peak, or the end of the great buyout boom is near.
Joseph Rice thinks it may be the latter. The chairman of buyout firm Clayton Dubilier & Rice told Bloomberg in an interview over the weekend from Singapore that “We are pretty close to the peak” of this private-equity cycle, which began after the last downturn in the industry in 2000-2001.
Signs that Rice might be right abound. Providers of the loans and bonds that have fueled the deal-making frenzy are starting to hold their wallets a bit more tightly. Last week, Royal Ahold’s U.S. Foodservice unit — in the midst of being bought by private-equity firms — was forced to trim down and delay the sale of debt to back its leveraged buyout, as The Wall Street Journal reported Saturday.
Then there was the initial public offering of Blackstone Group Friday. It doesn’t take a strong imagination to see the landmark sale, which the firm’s owners are using to partially cash out their stakes, as the climax of the boom.
Alas, many bankers and private-equity practitioners have been calling for a bursting of the M&A and lending bubble(?) for months, and so far it remains intact. All the worry could in fact could sustain the boom a while longer, as we discussed here.
After all, CD&R just signed up for one of the largest deals in its history, the $10 billion acquisition of Home Depot’s supply business. The string of quiet Mondays lately (normally the preferred day for merger announcements) also could signal little more than a typical summer slowdown, where even hyperactive bankers pause for a moment to smell their abundant roses. Certainly Deal Journal colleague Mahammad Hadi here sees the buyout speculators getting their flip-flops ready.
Time will tell whether it is Rice’s words or his actions that should be watched the closest.