LBO Morlocks & Private Equity Moles Ascend!

Here they come…

“I hesitated, and then, as I looked round me, I saw that the dust was less abundant and its surface less even. Further away towards the dimness, it appeared to be broken by a number of small narrow footprints. My sense of the immediate presence of the Morlocks revived at that.”

Like the burrowing Morlocks from H.G. Wells‘s The Time Machine, the practitioners of the Leveraged Buyout are crawling up from their credit crunch-imposed exile, spent deep under the crust of a charred investment hellscape – one partly of their own creation.  They deign to snatch up unprepared companies like the fictional Eloi that were the Morlocks’ quarry.

They tunnel back up to the surface with caution, blinking their mole-like eyes as though they’ve not seen the sunlight in what seems like forever.   Their names begin to resurface in media reports – a Schwartzman here, a Kravis there – and the rumored stocks associated with their avarice begin to tremble and quake.

*Fitch Ratings sees what it calls “LBO Risk” persisting in the retail patch, as shares of RadioShack ($RSH) and Supervalu ($SVU) flee higher as though running to the safer ground of uneconomical valuations.

*Harley-Davidson ($HOG) is put in play by rumors, from Frankfurt of all places, that KKR is kicking the company’s fat tires.

*Bank of America releases a list of LBO targets, including the likes of Lubrizol ($LZ), Lexmark ($LKX), Pactiv ($PTV), Harris Corp ($HRS) and US Cellular ($USM).

*Thomas Lee Partners makes a grab for the Carl’s Jr and Hardees chains ($CKR).

Everywhere you look, freshly disturbed soil marks the imminent emergence of an LBO Morlock, claws having been sharpened, appetite stoked, during the long winter of the Great Recession.

With the spigot of cheap, available credit flooding the underground, should we be surprised to see a target-rich environment draw these pursuers out from their subterranean lairs?

2005-2007’s private equity boom may not be repeated, per se – but will it be echoed?

Read Also:

LBO Risk Returns (Reuters)

B of A Lists LBO Targets (PEHub)