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
see.
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.