Don't You Leave My Deal In Misery, Let's Start Anew ...

January 7, 2008

Or, very likely, let's not. Crews were still sweeping away the mess in Times Square when word surfaced of yet another buyout deal left at the altar. This time it was PHH Corp., which announced that the deadline for completion of its acquisition by Blackstone Group and a unit of General Electric had lapsed.

This not only makes it the latest but one of the smallest deals to feel the crunch, meaning that even those not looking for billions upon billions in funding are not safe. While buyout firms have gotten cold feet in a few instances recently, such as with the $25 billion deal for Sallie Mae, the $8 billion deal for Harman International and the $4 billion deal for United Rentals, PHH, at $1.8 billion, is a good bit smaller. (A buyer involved in another similarly sized deal has tried and failed to end things. A Tennessee judge recently ruled that athletic-shoe specialist Finish Line and its bankers at UBS can't walk away from the $1.5 billion buyout of rival Genesco.)

Of course, Mount Laurel, N.J.-based PHH is a mortgage originator in the middle of a whopping housing slump, which may have something to do with why Blackstone couldn't come up with funding for the deal. However, the company is not alone in its troubles, either. While the middle market in general has fared reasonably well in recent months, other smaller deals have been touched, in one way or another, by the aftershocks of the buyout boom.

For example, affiliates of Platinum Equity have terminated an agreement to buy the automobile glass units of Pittsburgh-based PPG Industries for roughly $500 million. And they are filing a lawsuit in New York claiming the company fraudulently concealed facts material to the leveraged buyout.

Though the issue here is pricing, not funding, the case does beg the question: In how many cases did private equity firms, in their frenzy to buy while the debt markets were hot, pay too much?

Meanwhile, some suggest that Reddy Ice Holdings, the largest seller of packaged ice in the United States, could be next to see its deal fall apart. The company agreed in July to be acquired by hedge fund GSO Capital Parters in a deal valued at $1.1 billion including debt.

And while it's certainly dangerous to look for trends in individual cases, it seems safe to say that we probably have not seen the last of private equity's cold feet, and cold feet don't always mean big feet. — CJC

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