bloggingbuyouts

Over the past week, I've talked to a variety of reporters about the implosion in private equity. The problem? There has been no implosion.

Interestingly enough, they point to several articles in The Wall Street Journal on the matter. There was even a big piece on Blackstone Group (NYSE: BX) for the sister publication, Barron's.

Well, yes, the WSJ has another story on the topic today. As should be no surprise, it's negative and it's on the front page.

Basically, the negative view is that lenders are getting cold feet. After all, there are some danger signs. They include: rising interest rates, Bear Stearns' (NYSE: BSC) bailout of a biggie hedge fund, debt terms have been loosey goosey, and there funky investment vehicles like "payment-in-kind" notes.

As a result, lenders are pushing back on some deals. An example is US Foodservice's $3.6 billion transaction, which canceled its debt offering.

Basically, we are seeing mostly a readjustment in the marketplace, not an implosion (at least not yet). So deals should still get done. But, unlike the frothy past couple years, the costs will start to rev up for the private equity folks.

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

To pursue private equity or not to? That is the multi-billion dollar question for dealmakers.

And that's the question in a recent piece in the Wall Street Journal [subscription only].

As is always the case in these matters, there are major differences of opinion. There are unabashed bulls like Henry Kravis of KKR and there are bears like the Carlyle Group's David Rubenstein.

Given the easy credit and the bull market, it's been fairly easy to do deals. Yet, such conditions cover up mistakes.

So if history is any indication, it's only a matter of time until we see an implosion.

What's more, a key reason for the recent bull run in stock prices has been the anticipation of more and more buyout deals. But, what if private equity firms pull back? What if they wait for better valuations?

Basically, a fall-off could ultimately be a self-fulfilling prophesy. Funny enough, this would probably be a good thing for private equity firms -- because they will be able to once again get better valuations on their deals.

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

The Wall Street Journal (subscription required) Weekend Edition's Billionaire Black's Latest Game of Investing Hardball provides an interesting look at Leon Black's Apollo Management LP, and some information about the future of the private equity industry. For one, private equity is relentlessly focused on the bottom-line, and often seeks to cut costs rather than grow revenues:

Like many buyout firms, Apollo sometimes stirs resentment at companies it buys with its unwavering focus on the bottom line. In late 2001, Apollo purchased Compass Minerals International Inc., NYSE:CMP)an Overland, Kan., salt and fertilizer maker, for $590 million, investing $102 million of the fund's money and borrowing the rest. Whenever Apollo executives visited, they "made a beeline for the accounting department," says former Chief Executive Robert Clark, who ran it for a year after the purchase. When he tried to discuss marketing, their "eyes would glaze over."

Last summer, Black appeared less than optimistic about the future of private equity:

"There are few bargains out there. Deals private-equity players would have required a 25% return on in the past are now being done for mid-teens returns. That may be OK if everything goes OK. But if we have an economic downturn, some of these deals will come back to haunt the people who did them."

This makes his decision to explore taking Apollo public, or selling a portion privately, all the more suspect. After all, with a net worth north of two billion dollars, he can't possibly need the money. It seems that the only reason for him to sell a stake in the company is to cash out because he's bearish on the future of private equity. And if Leon Black doesn't like the industry's futures, investors should avoid private equity IPOs.