CD&R deals spread some ill will on Wall Street
Oct 09, 2007

NEW YORK (Reuters) - When Clayton, Dubilier & Rice bought home services provider ServiceMaster in July, the private equity firm showed it was willing to scoop up an entire public company, straying from its usual strategy of acquiring orphaned corporate divisions.

The scrappy leveraged buyout shop also showed that, as in its $7.1 billion purchase of food industry distributor U.S. Foodservice earlier that month, it was going to hang tough on financing terms, despite fears that the credit crunch would force lenders to take losses on the loans.

CD&R's rigid stance on terms probably earned it kudos from institutional investors but left a sour taste in the mouths of some investment bankers, according to several people involved in the deals who asked not to be identified.

CD&R's approach was similar to that of Kohlberg, Kravis Roberts & Co, which also held fast on the financing of several large deals inked before the credit crunch. CD&R brought KKR into the U.S. Foodservice deal.

For both firms, the question is whether they will suffer some form of retaliation in the future for playing hardball with Wall Street's biggest lenders.

For CD&R, the risks of standing up to banks are especially high because the New York firm, investing a $4 billion fund, is considerably smaller than KKR, distributing far less fees to Wall Street -- fees that help offset loan losses.

To be sure, some private equity pros and industry experts applaud CD&R for not bending too far in favor of its banks.

Still, the issue underscores how the credit crunch has strained relations between private equity buyers and Wall Street, after the two sides worked hand-in-glove on more than $1 trillion of buyouts signed in the last two years.


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