Carlyle in talks to buy J&J unit

New York

Carlyle has entered exclusive talks with Johnson & Johnson to buy its blood testing unit in what would be about a $4 billion (Dh14.7 billion) deal, edging out a competing offer from Blackstone and its strategic partner Danaher Corp, according to two people with knowledge of the matter.

The exclusivity expires in mid-January, at which time the US alternative investment group hopes to have completed its due diligence on the unit, according to the two people.

Spokesmen for Blackstone and Carlyle both declined to comment.

A deal is not guaranteed, but if successful, it would go into Carlyle’s flagship US buyout fund which is under the wing of Bill Conway, one of the groups three founders and a respected investor in the small world of the mega buyout firms.

Carlyle has been very active in the healthcare space as have competitors including Blackstone and KKR. It already owns PPD, a drug trials firm as well as Manorcare, a chain of nursing homes.

Like its rivals, Carlyle has been frustrated by the lack of buying opportunities and the high valuations of public companies at a time when the cost of debt has been at record lows.

“With interest rates at rock-bottom levels and asset prices being bid up, the investment environment in the United States has become increasingly competitive,” the three founders of Carlyle noted in a year-end letter to limited partners seen by the Financial Times. “Despite a more difficult investment environment in the United States, we continued to find creative ways to deploy capital.”

While record-low interest rates have helped to finance buyouts, they have also made companies reluctant to sell either themselves or divisions, at least partly because they don’t know what they would do with the proceeds from any sale given those low rates.

Carlyle has also been among the most active of the major private equity groups in returning money to investors. In the year ending September 30, it returned about $12 billion to investors in its private equity funds through a mix of sales, listings and follow on equity offers, and expected to have listed 12 companies by year-end, according to the letter.

Private equity groups have been among the biggest beneficiaries of the Federal Reserve’s quantitative easing, which has led to a liquidity-driven surge in the stock market. That has aided the environment for listings, a favoured exit avenue for private equity.

At the same time the groups have hedged against any future interest rate rise by shifting the floating-rate debt they borrow into fixed-rate debt.

— Financial Times