For further proof that the competitive advantage in M&A has shifted from financial to strategic buyers, give Vipal Monga's piece,
Blackballed, in
this issue of The Deal newsweekly a read. In it, Monga reports that some corporate sellers are excluding private equity groups from auctions, even when those firms have expressed interest. He cites Royal Bank of Scotland Group plc, General Electric Co. and Weyerhaeuser Co. as examples of companies that have excluded or possibly discouraged PE participation.
There are a couple of reasons behind the phenomenon. Tight financing has made it difficult for PE firms to compete on big deals, at least that's the feeling among some sellers who have discouraged potential financial bidders. And, perhaps, more significant is that there is a lack of certainty about PE's ability to deliver on contracts. As Monga notes, a number of PE-backed deals have either collapsed or been reduced in recent months.
The issue of certainty was raised at last fall's CD Forum, our annual New York gathering of corporate dealmakers. As we noted in a
follow-up report, Richard McPhail, VP for strategic business development at Home Depot Inc., talked of having to renegotiate the sale price for HD's contracting business to a PE buyout group from $10.3 billion to $8.5 billion.
"Now I think you're going to see the negotiations around certainty with private equity buyers become pretty tough," he said at the time. "I think you're going to see MAC clauses and break fees fought in the trenches, and you're going to see tough due diligence."
Those predictions are proving true. -
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