How to Play the End of the Private-Equity Boom

This column was originally published on RealMoney on Mar. 3, 2008 at 3:52 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

From 2004 right up until the first two weeks of August 2007, it was widely assumed that there was a private-equity put in the stock market. Any time valuations fell to a certain level, it was just assumed that the funds, flush with cash and the ability to obtain almost unlimited leverage would swoop in and bid the shares back up.

You know what? There was, and I have to confess, I miss it. It was a lot of fun. All you had to do was put together a portfolio of stocks that generated free cash flow , had small amounts of debt and sold for less than five times enterprise value to EBITDA , and you were going to get a lot of takeovers among your stocks.

Simply by paying attention to hedge funds' and other activist investors' 13d filings, you could pretty much see in advance where the private-equity money would show up next and position yourself accordingly.

The End of the Good Old Days

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