"It's already brutal," said a senior American deal-maker based in the City. "And it's going to get worse."
The supply of deals available to European and US buyout firms is increasing. A record $434bn in European mergers and acquisitions was announced in the year's first quarter. This restructuring will generate private equity opportunities. But the growing supply of buy-out opportunities looks set to be outstripped by the growth in money chasing those opportunities.
One private equity specialist calculates that buyout firms plan to spend $15bn a year over the next four to five years.
The bidding war for the troubled food manufacturer Hillsdown offers proof of the phenomenon, bankers said. The company is struggling, but the US private equity group Hicks, Muse, Tate & Furst is at daggers drawn with the UK venture capital firm Candover over it. On Thursday, Hicks, Muse raised its recommended bid to 141p a share, valuing it at more than pounds 500m. Within hours, Candover issued a statement saying it was considering beating this offer and urging Hillsdown shareholders to take no action.
Behind the scenes, meanwhile, two more deals in the works illustrate the strength of the sellers' market even more graphically. As part of the root-and-branch restructuring an-nounced last year, Siemens is selling its Electromechanical Components Group.
Last month Siemens retained JP Morgan to handle the sale. Ordinarily, Morgan would give interested parties six to eight weeks to review the information memorandum that is currently being circulated.
ECG, which makes electric switches to stop or redirect power, connectors, and fibre-optic devices, is a complex company with 12,400 employees spread over 16 manufacturing sites in more than 50 countries. German analysts say the sale of ECG will net Siemens somewhere around $800m (pounds 500m).
But Morgan has given interested parties only three weeks to bid. "They are the experts," said a Siemens spokesman. "If they say three weeks is enough, we trust them."
Morgan is conducting another German spin-off auction, for Hoechst Roussel Vet, the veterinary unit of the German chemcial company, under even tougher conditions for buyers. Two weeks ago, Hoechst announced it was accelerating its $21bn merger with French life-sciences group Rhone-Poulenc, and putting Hoechst Roussel Vet on the bloc.
The veterinary unit has 2,400 employees and operations in 79 countries. But Morgan is giving interested parties only 10 days to make a bid after receiving the information memorandum.
"Ten days is it," said one potential buyer.
"Since these companies are internal units of bigger companies, there is no way to get the financial details from sources other than the information memorandum."