In the showroom

DEARBORN, Mich. — Private equity firms flush with cash but short on deals could be candidates to purchase troubled Ford Motor Co.

Plus, easy debt financing and growing fund sizes are making heretofore unreachable large public companies fodder for private equity funds, said Michael A. Wilson, managing director of private equity firm TA Associates, Boston.

Some insiders think traditional buyout firms would court Ford. Others say firms that specialize in investing in distressed companies would pursue the automaker. In both cases, however, there are drawbacks.

Ford does not meet the typical guidelines of large buyout firms, which look for stable and predictable cash flows, Mr. Wilson said. The big players normally avoid cyclical industries like the automotive industry, he added.

On the other hand, "Ford is not a traditional distressed investment. The company is stressed, but not distressed," said Jonathan Rosenthal, partner in Santa Monica, Calif.-based distressed firm Saybrook Capital LLC. Mr. Rosenthal worked on the turnaround of United Airlines.

The list of possible suitors for Ford is all over the lot: distressed buyout/turnaround specialists Cerberus Institutional Partners, Lone Star Partners and AMVESCAP's newly acquired WL Ross & Co.; buyout firms The Carlyle Group; One Equity Partners, a JPMorgan affiliate, and Clayton Dubilier & Rice Inc.; and firms that do both distressed and more straightforward buyouts such as Texas Pacific Group and Blackstone Group.

Executives at these firms either declined to comment or denied interest in buying Ford.

So far, Ford executives will neither confirm nor deny that the company is for sale. But insiders say shareholders think that a deal to take the entire company private is in the works.

Last week, Bill Ford, chairman and chief executive officer, said in a statement that Ford — whose market capitalization is beginning to sink below $15 billion — would sell its Aston Martin U.K. auto line to generate cash to restructure the firm. Some believe Ford also is preparing to sell other parts of the company, including its Jaguar and Land Rover lines.

Executives late last year jettisoned rental car company Hertz Corp. to a consortium of private equity firms lead by Carlyle Group, Washington. And Ford is in the midst of a strategic review of its entire business.

"Bill Ford has said many times before (that) we are looking at all aspects of the business, and everything is on the table," said Tom Hoyt, Ford spokesman.

Buyout or distressed/turnaround players might not give Ford a second look were it not for the billions of dollars in commitments they have collected from investors. Cerberus, for example, currently has a $6 billion fund, nearly five times the size of its earlier $1.4 billion fund, according to data from Probitas Partners, San Francisco. Lone Star's latest fund has $5 billion, up from $4.2 billion last fund.

Ford's affiliation with strong unions, which may be unwilling to give significant concessions, would be a negative for buyout firms, said George W. Lloyd, partner in the private equity group of law firm Goodwin Procter LLP, Boston. "Ford is part of the old economy, and there are a lot of entrenched labor unions," he said.

Unions would not offer meaningful concessions until a company is on the brink of a debt default or bankruptcy, he added. Other large leveraged buyouts were with companies that did not have strong unions, he said.

Ford also has not yet experienced a significant event like a default or bankruptcy that would cause management to submit to a complete company overhaul.

But Saybrook's Mr. Rosenthal said the ever-growing sizes of distressed private equity and buyout funds are forcing the managers to take on deals they would not have considered a year or two ago.

"We will see a migration of large distressed funds into this space because they need to put money out and they need to expand their universe of opportunities. Private equity managers are migrating into distressed for the same reason," he said. "Investment managers are often under pressure from their limited partners to put capital to work. It requires extraordinary discipline and commitment to an investment thesis to stay focused and avoid ‘style drift.' "

Few private equity firms go it virtually alone as Kohlberg Kravis Roberts & Co. did in the 1980s when it paid $6.2 billion for Beatrice Co., said Steve Nesbitt, chief executive officer of alternative investment consulting firm Clearwater LLC, Marina del Rey, Calif. Mr. Nesbitt pointed to Beatrice as a well-done early corporate restructuring of a large corporation by a buyout firm. Increasing use of club deals, in which large buyout firms join together with other buyout and sometimes distressed players to buy large companies, are also making super-sized public-to-private deals possible. However, even the mega-buyout and distressed firms have their limits.

Some companies like Ford are large, but their market capitalizations are small and could be acquired for a lower price. Ford's market cap, for example, is a fraction of the $54 billion capitalization of DaimlerChrysler AG, Mr. Nesbitt said. "Microsoft (with a market cap of $256 billion) would be impossible."

Just because a large private equity firm has the money to buy large public companies does not mean the deals are easy or the large public companies are easy to turn around, said Carlyle spokesman Christopher Ullman, quoting from a speech that Chairman Louis V. Gerstner gave at Carlyle's May company retreat.

Some industry experts say few firms specializing in buying distressed companies have enough money to buy Ford, even in its current condition.

Ford is "much more likely to be purchased by a consortium of mega-buyout funds rather than distressed funds," said Kelly DePonte, partner at Probitas Partners, a San Francisco private equity advisory placement agent. "Buying Ford even in its weakened state would require a lot of money, and the mega-buyout funds are so much larger than most distressed players that they are more logical players."

Large buyout firm executives are no strangers to distressed companies. Beatrice bonds had junk status when KKR bought it with financing from Michael Milken's group at Drexel Burnham Lambert. And David Bonderman, managing partner of private equity firm Texas Pacific Group, was involved in the turnaround of Continental Airlines, Mr. DePonte explained.

About one-third of TPG's deals are distressed companies and turnarounds, said Owen Blicksilver, TPG spokesman.

"The largest distressed players are distressed debt funds that buy debt in companies in dire trouble where the equity is likely to be wiped out and the debt holders take over. As far as I know, Ford is not nearly that desperate," Mr. DePonte said.

Still, Ford recently hired Ken Leet to conduct a strategic review of the automaker, said Oscar Suris, Ford spokesman.

"We're thinking more globally and looking to more effectively leveraging our resources globally," Mr. Suris said. He declined to comment on whether Ford or any of its other subsidiaries were up for sale. "We're carefully weighing all our strategic alternatives for the long term," he said.

Traditional buyout players would be wary of incurring massive amounts of debt in an environment of increasing interest rates, TA Associates' Mr. Wilson pointed out. Generally, leveraged buyouts have a floating rate as well as a fixed-rate component, he said.

Laying on extreme debt requires earnings growth for the portfolio companies to repay the debt, and large publicly traded companies are not a typical growth deal, Mr. Wilson said. Buyout firms generally buy public companies for the steady earnings they provide, he said.