CD&R says deals not part of Hertz plan

NEW YORK (Reuters) - Buying other rental car companies to grow the Hertz business is not the focus of its strategic plan, Kevin Conway, managing partner of private equity firm Clayton, Dubilier & Rice, said on Wednesday.

New York-based Clayton, Dubilier & Rice led the investor group that agreed to buy rental company Hertz from Ford (F.N: Quote, Profile, Research, Stock Buzz) last September for more than $15 billion including debt.

"Acquisitions are not a key part of our strategy," Conway said, speaking at the Reuters Hedge Funds and Private Equity Summit. "The (Hertz) strategy will be driven by operating improvement and building off the franchise that they already have."

"There is a big difference in performance between different locations. Some of which are structural, some of which are not," he said.

Conway said the firm's approach to Hertz is similar to the way it approached other investments, including copy company Kinkos and printer maker Lexmark, in terms of driving operational growth.

CD&R brought on former GE executive Jack Welch in 2001 to advise the New York-based firm and some of its portfolio companies.

While other private equity firms have grown in both deal size and number of deals and professionals, CD&R has remained a small firm, taking their time exploring transactions and trying to complete "zero to three" deals in a year, as Conway put it.

CD&R first explored the idea of buying Hertz three years before it sealed the deal, Conway said. The investor group included Merrill Lynch's private equity arm and the Carlyle Group.

The firm, founded in 1978, has 31 professionals in the U.S. and Europe and is currently investing a $4 billion fund.

Conway said with company valuations rising and competition heating up, private equity returns to investors are under greater pressure.

The days of financial engineering, where a buyout shop leverages a company with debt, flips the business and makes three times its investment, are fading.

"It is going to be harder and harder to drive the returns," Conway said. "Most firms are trying to figure out how to add operating talent."

CORPORATE CARVE-OUTS

CD&R typically seeks to buy divisions of companies, rather than the entire enterprise.

Investment bankers and private equity executives believe that a push from shareholders to trim down or split-up large companies will offer opportunities to buyout firms.

Should the trend take hold, it would certainly benefit a firm such as CD&R.

"There is increasing pressure for companies to streamline and focus on their core business," Conway said. "There is less patience given to companies that have multi-line businesses."