This week's take-over of Turkish retailer Migros and its modest $3.25 billion price tag is the biggest private equity deal in 2008 so far, showing just how times have changed for buyout firms. The deal, priced below investor expectations, is small fry compared to the $43.8 billion private equity take-over of Texas power company TXU Corp in February 2007.
Nikos Stathopoulos, a senior partner at BC Partners which led the take-over of Migros, agreed deal making was hard at the moment and that financing provided by Turkish banks was key. "It's difficult to do deals right now. The sellers' expectations on prices have not adjusted properly to the markets, especially the (debt) financing markets," he said.
The credit crisis means that not only do buyout firms have to club together they are also seeking financing in emerging markets to raise money, even for mid-sized deals. "The advantage with local banks is that they are not tied up in the credit crunch and they have significant liquidity and they know the brand you are buying," Stathopoulos said.
Garanti Bank, Is Bank and Vakifbank will finance the purchase, in a sign of how emerging market lenders are filling the breach left by international banks hindered by the worst credit crisis in a generation.
BC Partners snapped up Migros with the help of Turkey's Turkven and Italy's DeA Capital, scuppering a bid by larger rival Blackstone and Croatian food group Agrokor.
While maintaining that the Blackstone group was frontrunner to win Migros, a source close to the matter said on Monday that Agrokor might have to bid alone or find another partner. Blackstone and Agrokor's financing package may have been less robust than that of the winning consortium and raising debt in the current environment was testing for most of the bidders, people close to the deal said.
Migros originally caught the eye of several private equity giants. Kohlberg Kravis Roberts & Co LP bid in the second round, people close to the auction said at the time.
CVC Capital Partners dropped out in January, according to other sources close to the deal, as did a trade group of Sabanci Holding and Carrefour. Contrast that with February 2007 when a private equity buyout splurge was still in full swing and Blackstone and CVC were part of a consortium proposing a 10.1 billion pound ($19.85 billion) bid for British retailer J Sainsbury Plc. It fell apart amid opposition from the Sainsbury family and pension trustees but was a measure of how much private equity was ready to pay for a retail acquisition in a mature market.
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