Bettor's Guide to Buyouts

Get Jim Cramer's picks for 2006.

If you thought the leveraged buyout machine was humming in 2005, just wait until next year.

More than $100 billion plowed into private equity coffers in 2005, and firms such as Blackstone Group are raising funds that top $11 billion.

Dan Primack, editor-at-large with Venture Economics, a provider of information and analysis on the private equity industry, says the industry could end up doubling its 2004 fundraising this year, and that should lead to some monstrous deals.

"Every company is ripe for a buyout in 2006, short of Microsoft (MSFT) or Google (GOOG)," Primack says. "Private equity firms have become the largest M&A players in the market. They're bigger than strategic buyers now, because all they do is takeovers. They're the modern-day conglomerates, except that [unlike] real conglomerates, they like to liquidate."

When buyout firms get active in the public markets, stock owners benefit from the high prices they're willing to pay for shares. That was the case in this year's blockbuster deals, such as Sungard Data Systems, Toys R Us and Neiman Marcus. Now, observers say, 2006 could be the year when buyout firms finally top the $25 billion takeover of RJR Nabisco in 1989 -- the largest single deal ever closed in the history of the LBO.

Steven Kaplan, a University of Chicago business professor, compared today's private equity craze with previous high-water marks for the industry, reached in 1988 and 1999.

"The stock market was very robust, which it is today in terms of valuations," Kaplan says. "The credit markets were very liquid, which they are today. As a result, buyout firms had some pretty good exits, so their returns looked pretty good. That attracted a lot of money, and when the money got spent, returns weren't so good. That could be exactly what we're looking again now."