Consumer-Related Deal Flow Drops, LBO Pro Says

Executives at Charterhouse Group, gearing up to raise a fifth buyout fund, anticipate deal flow will be off by about 20 percent for the final six months of 2008.

The mid-market buyout shop, which is based in New York, was pleasantly surprised with the number of opportunities it saw in the first half of the year—it looked at 400 deals, or roughly equivalent with action in the first half of 2007. But it has seen a sharp decline in the number of opportunities presented from investment bankers since June, David Hoffman, partner, told Buyouts, mainly because of troubles hitting the consumer sector. “If you’re selling a consumer products company and retail spending has dropped off precipitously, you don’t want to be selling your company,” Hoffman said.

Hoffman said his firm is sourcing most of its deal opportunities, rather than fielding opportunities from investment bankers. He characterized deal opportunities sourced in-house as down slightly this year.

The drop-off is especially noticeable in consumer and business services, two sectors that are under pressure from high commodity costs and escalating gas prices. Of the 32 buyout-backed bankruptcies estimated so far this year, 11 are consumer products and services businesses, as previously reported in Buyouts. Charterhouse also acquires companies in telecom services and health care services.

Nonetheless, the firm is keeping active. It currently has a business services company under letter of intent and expects to close the deal by mid-October. It’s also in the process of closing an add-on deal for one of its portfolio companies. “I would say we’re very active,” Hoffman said.

In June, Charterhouse bought Chamberlin Edmonds & Associates Inc., a hospital services outsourcer, in its only platform acquisition this year. It also closed three add-on acquisitions for The Camelot Schools LLC, a Dripping Springs, Texas-based company it owns that provides services to children with mental health and behavioral problems; and in February it supported an add-on acquisition for Towne Holdings Inc., a South Bend, Ind.-based company it owns that provides freight transportation services for airlines.

Charterhouse is also gearing up to raise its fifth buyout vehicle. Buyouts reported in December 2007 that the firm would seek to raise $750 million. It raised its fourth fund, the $447 million Charterhouse Equity Partners IV LP, in 2002 and 2003.