CD&R Closes Fund, Completes Third Deal in ‘09

Clayton Dubilier & Rice has closed its eighth fund with $5 billion in capital commitments, according to a source familiar with the situation. An announcement is expected shortly.

The New York-based firm originally began fundraising almost two years ago with listed hard cap of $7.5 billion, after having raised $4 billion for its seventh fund in 2006.

CD&R is one of those in-between-sized firms that tends to fly below the radar. With a $5 billion fund, it isn’t quite a mega-firm, but it’s not middle-market either. The firm typically does just one deal per year, which makes 2009 a big one for CD&R. Last year CD&R closed three deals, all paid for by its new fund.

On Christmas Eve, the firm announced its acquisition of BCA, a UK-based seller of autos from corporate lessees and rental businesses to used car dealers. The deal value was not disclosed, but a source familiar with the deal said CD&R paid £319 million for the company (including around a 55% equity check). The firm used eight banks to finance the transaction.

Montagu Private Equity, formerly HSBC Private Equity, launched an auction for the company in October, with the goal of exiting the company by the year’s end as it prepares to launch its second fund (prior vehicle is a 2005 vintage with £2.2 billion in commitments). The auction included bids from Bridgepoint, Cinven and BC Partners, according to reports. Dave Novak, 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 company attractive because it’s a market-leading business-to-business company in both the UK and continental Europe, the latter being less-mature market which the firm hopes capitalize on. Novak compared the growth plans to CD&R’s investment in 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 the CD&R’s deal activity and employees.

The firm believes distribution businesses, like BCA, serving many customers through many deals provides an attractive distribution of risk. Likewise, the firm will introduce best practices across the company’s many regional branches, Novak said. CD&R is particularly interested in BCA’s online business, which has shown double digit growth in the past year, he said.

CD&R’s deal and fund closings cap an active year for the firm. In October, the firm made a $250 million equity investment in the NCI Building Systems, a maker of metal products for nonresidential buildings. That same month, the firm invested $477 million for get a 46% stake in commercial cleaning company JohnsonDiversey.

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