CD&R Closes Fund VIII After Nearly Two Years

Firm: Clayton, Dubilier & Rice

Fund: Clayton Dubilier & Rice Fund VIII LP

Amount Raised: $5 billion

Target: Initially $7.5 billion

After almost two years in the market, Clayton, Dubilier & Rice has closed its eighth buyout fund at $5 billion in commitments, below its initial hard cap of $7.5 billion. The New York-based firm’s prior fund closed at $4 billion in 2006.

The firm also regained a partner it lost during the financial crash of 2008. CD&R had hired Edward Liddy, the former CEO of Allstate, as an operating partner in May of that year. But Liddy wasn’t at CD&R for four months before the government recruited him to temporarily run AIG as a part of its bailout of the failed insurance giant. He replaced Robert Willumstad. At the time, CD&R assured investors that Liddy would return to the firm once his stint at AIG was up. He did so this month.

CD&R operates in the gray area between middle-market funds and mega-funds, preferring to fly below the radar and to close as few as one deal per year. Last year proved to be an especially busy year for the firm between closing the fund and completing three deals.

It latest deal was announced on Christmas Eve. The firm acquired BCA, a U.K.-based seller of cars from corporate lessees and rental businesses to used-car dealers. Terms were not disclosed, but a source familiar with the transaction said CD&R paid £319 million ($515.9 million) for the company, writing an equity check for approximately 55 percent of the deal value. The firm used eight banks to finance the transaction.

Montagu Private Equity, formerly HSBC Private Equity, launched an auction for BCA in October, with the goal of exiting the company by the year’s end as it prepares to launch its second fund, a follow-up to its 2005 vintage debut fund that took in £2.2 billion in commitments. The auction included bids from Bridgepoint, Cinven and BC Partners, according to reports. David Novak, a partner with CD&R, said the firm’s industry expertise helped it win the deal. “We started looking at the car auction business in 2000, and have been around auto-related businesses since 2005, when we bought Hertz,” he said. That gave the seller confidence in the firm’s speed and certainty of closing, he added.

CD&R found the BCA attractive because it is a market-leading business-to-business company in both the United Kingdom and continental Europe. Novak compared the growth plans to that of Brakes, a food service distributer the firm sold in 2007. Brakes had penetrated the more mature British market but CD&R led its growth into Europe. Europe represents around one third of CD&R’s deal activity. CD&R is particularly interested in BCA’s online business, which has shown double digit growth in the past year.

In October, CD&R made a $250 million equity investment in NCI Building Systems, a maker of metal products for nonresidential buildings. That same month, the firm invested $477 million for a 46 percent stake in commercial cleaning company JohnsonDiversey.

The firm’s fifth fund, a 1995 vintage, has earned a 1.03x return, and its sixth fund, 1998 vintage, has earned a 1.43x return, according to data from the Washington State Investment Board.