By most accounts, the first part of 2006 was a private equity bubble -- or, more euphemistically, a "golden age" in the words of Henry Kravis.

But with the credit market dryer than it's been in years as Wall Street digests the record wave of buyouts, there's one question that lots of people are wondering about: which companies will be the big private equity failures? What firms paid to high a price for businesses in decline and, even with cost cuts and layoffs, will have trouble making interest payments?

The Wall Street Journal has a few ideas [subscription]: Apollo's buyout of Realogy, Blackstone's Freescale Semiconductor and, more recently, Cerberus' Robert Nardelli-run Chrysler.

Realogy, which owns real estate brokers like Century 21 and Coldwell Banker, has already run into problems with its lenders and the housing slowdown probably won't make things easier.

As we watch private equity buyouts end in disaster -- and make no mistake, some of them will -- I think a pattern will emerge. The failures will occur where private equity firms bought complicated businesses that weren't easy to understand, paid a high cash flow multiple for them, and bought hot companies in hot industries.

When these firms stick to their bread and butter -- boring but consistent performers in un-sexy industries -- they'll probably continue to do quite well.

Freescale Semiconductor was bought by a private equity group in December 2006. Quarterly results since then have been disappointing. Although recently released 2Q 2007 results are up from 1Q 2007, results are still way behind comparable quarters before the company was taken private. There are numerous reasons for the last two quarters' worth of disappointing results. The first is that there continue to be many expenses related to the company's acquisition. The company also took on a heavy debt load in its acquisition. Most importantly, the wireless market overall is in a period of contraction, so sales are in decline. This is particularly true of Freescale's largest customer, the automotive industry. Freescale CEO Michael Mayer offered no prediction as to when the wireless market might become more active.

Net sales have been essentially flat in 1Q and 2Q 2007, at $1.36 billion and $1.38 billion respectively. Each of the three operating segments within Freescale lost money in 2Q 2007 when compared to a comparable quarter in 2006. The Transportation and Standard Products segment lost $92 million from 2Q 2006, posting earnings of $159 million. The Networking and Computer Solutions segment posted earnings of $328 million, down $42 million from 2Q 2006. The biggest loser by far was the Wireless and Mobile Solutions segment, which posted earnings of $353 million, down $161 million from 2Q 2006 earnings. With results like this it is no wonder Freescale has now turned to layoffs in order to cut costs, but ended up with a $38 million charge against earnings for severance costs. Losses continue to mount. Net losses for 2Q 2007 amounted to $288 million, while operating losses amounted to $268 million. If this rate of loss continues, look for Freescale to be resold or perhaps even taken public again.

With the private equity boom in full swing, it's inevitable that some of the buyouts won't end well, and that many of them will experience considerable turbulence on the way to whatever their fate happens to be. Recently, the wisdom of buyouts of companies including Linens 'n Things, The Star Tribune, Freescale Semiconductor, and Realogy is being questioned.

While these may be isolated incidents, The Wall Street Journal warns that the industry is losing its margin for error: "Companies that have gone private in buyouts are generating cash that exceeds their debt interest payments by just 1.7 times, versus 2.4 times last year and 3.4 times in 2004, according to Standard & Poor's Leveraged Commentary & Data. The ratio is at a 10-year low and shows how the margin for error for companies is shrinking as their profit growth is slowing."

This isn't really surprising. With investors pouring record sums into buyout funds, these firms have to find deals: More money chasing deals results in more deals, and some of the deals being done wouldn't have happened in a different climate.

Will this lead to the decline of the buyout boom? Renowned short seller Jim Chanos was asked about that by the Financial Times on Friday, and here's what he had to say: The boom is "sustainable as long as the easy credit is there - that's what's driving it. It's not, as many people believe, that the stock market is inexpensive, in fact on a lot of measures the stock market is probably as expensive, broadly, as it's ever been. What's driving it is easy credit availability and, as importantly, the boom in structured finance, whereby lenders are parceling out the loans in various collateralized obligations and investors are buying small pieces as they see fit. It's diffused the risk but the risk has not been eliminated... We've seen all of this before. It will probably take something similar to a Drexel Burnham-United Airlines which ended in the late 1980s to unwind this or at least put fear back into the marketplace. It will be a failed deal of some sort."

Investors have to think about what the ramifications of a slowdown will have on the broader market. Stock prices have been buoyed by buyouts in recent years and an end to that bubble could make the current market level look bubblicious as well.

Over the past few years, private equity firms have shown an appetite for mega deals – and even riskier sectors, such as semiconductors.

A prime example is the $17.6 billion buyout of Freescale. The buyers included Blackstone Group, Carlyle, Permira Advisers, and the Texas Pacific Group.

Well, according to a piece in The Wall Street Journal [a paid service], the deal may show the inherent risks of the new approaches to private equity. Freescale has posted weak financials lately. A big problem has been the slowdown from major customer Motorola Inc. (NYSE: MOT).

Of course, the private equity sponsors understood the volatile nature of the semiconductor industry. They also realized that the debt markets were carefree with lending money. As a result, there is about $1.5 billion in Freescale debt that is variable. This means that the company can defer payments (kind of nice, huh?).

This is fine so long as the company eventually comes back. But, history is not so kind to semiconductor companies and there is certainly a good amount of competition. Another nice feature: Freescale can call on $750 million in new loans at any moment.

No doubt, it's good to be in the private equity business. Although, as for those holding debt in these deals, it does look fairly risky.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

During the past week, two tech companies decided to go private: Intergraph ($1.3 billion) and Embarcadero Technologies Inc. ($234 million).

Well, these deals are small-time compared to the possible buyout of Freescale Semiconductor. This is according to a NY Times article, which pegs the valuation of the transaction at $16 billion. This would exceed the $11.3 billion deal for SunGard Data Systems.

Actually, this is not the only semiconductor company to be targeted for a buyout. In August, both KKR and Silver Lake purchased the semiconductor unit of Royal Philips Electronics for 3.4 billion euros.

Basically, it looks like the semiconductor industry is poised for strong growth. After all, with the growth in things like iPods and cell phones, there is a need for semiconductors.

As for Freescale, it had revenues of about $5.8 billion for the past year. Also, it has big-time customers like Motorola, Cisco, Ford, and General Motors.

Of course, for investors, it will be tough to make money on Freescale, as the stock price soared on the news. True, there may be outside bidders. But, for the most part, private equity firms do not like to get into a bidding frenzy – at least not so far.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.