bloggingbuyouts

The Washington Post thinks the recently announced deal by Silver Lake Partners and Texas Pacific Group to take telecommunications equipment maker, Avaya, Inc. (NYSE: AV), private indicates a perilous decline in credit standards. And the Post thinks this decline will contribute to the end of the takeover boom.

I always feel a bit skeptical when I read these kinds of articles. It's not so much that the logic is flawed, but the timing is often hard to pin down. I am guilty of doing the same thing myself since I wrote something similar last August. And yet the takeover boom refuses to bend to the will of the pundits.

The Post believes there are three reasons why the takeover boom has peaked:

Senator John McCain likes to say that the federal government is like a drunken sailor. He then apologizes to sailors.

We've also seen some drunken behavior in private equity. Then again, with a stable economy, cheap debt and tons of equity capital, why not do lots of deals – even if some are dicey?

In today's Wall Street Journal [subscription only], it now looks like some of the deals are not looking so good.

Keep in mind that buyout transactions involve lots of debt. So if things come undone, the consequences can be severe.

Some of the problematic deals include Linens 'n Things, Star Tribune, and Freescale.

Basically, these are companies in volatile industries. For example, Linens 'n Things must not only deal with tough competition but an ailing real estate sector; Freescale is in the rough-and-tumble semiconductor space and its biggest customer, Motorola (NYSE: MOT), is lagging; and the Star Tribune is suffering from the diversion of advertising money to dot-com properties.

True, this is a small sample. But we are still in the early stages of the buyout surge, so it's tough to gauge what may happen. Although, if the economy falters and interest rates continue to rise, we'll definitely see more deals go sideways.

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