Buyouts in the tens of billions of dollars were all the rage on Wall Street just weeks ago, but market observers say an abrupt credit crunch has spoiled the dealmaking party.
The days of cheap credit, which fueled a buyout boom, appear to have evaporated as major banks have revealed vast losses tied to risky mortgage-backed securities.
Fearing a worsening meltdown in the distressed US housing market, the banks are seeking to preserve cash and curtailing their lending to private equity firms who stoked a buyout frenzy this year.
"I think it's unlikely the next six months will be nearly as active as the last six months," said Michael Weisbach, who holds the Golder chair in corporate finance at the University of Illinois.
Weisbach, who has just co-authored a study on the financing behind 153 large buyouts, said deals will still occur, but they will likely carry lower price tags.
Just a month ago, private equity giant Blackstone launched a US$26 billion takeover of the Hilton Hotels Corp after toasting a partial stock market listing which raked in over US$4 billion.
Such deals propelled the Dow Jones Industrial Average stock barometer to a record high of just over 14,000 points in the middle of last month, partly as investors bid up stock prices on the back of big buyout deals.
Other private equity firms, including Kohlberg Kravis Roberts and the Carlyle Group, also participated in the buyout binge.
Joel Naroff, the chief economist of Naroff Economic Advisors, who is a consultant to Commerce Bank and advises companies on economic risks, agrees the buyout spree will moderate.
"I expect the buyout process will slow quite a bit and probably stay that way the rest of this year and possibly the first half of next year," he said.
Wall Street shares have fallen hard and fast in recent weeks, the Dow is hovering around 13,000 points, as homes sales continue plummeting amid a surge in foreclosures.
Several big banks including Goldman Sachs and Bear Stearns have revealed trading losses or had to inject hundreds of millions of dollars into troubled investment funds.
The stock market slump has made banks more cautious about extending credit which is the lifeblood of private equity firms. Such firms take on debt to buy out companies, hoping they will be able to re-structure them and sell them for a tidy profit within several years.
The financial turbulence, which has made lenders more risk averse, was apparent in a deal mounted by three private equity firms to buy out Home Depot's wholesale supply division.
Home Depot, the US' biggest home-improvement retailer, had planned to sell its supply unit for US$10.3 billion.
But it announced on Tuesday that the deal's price tag had sunk 17 percent to US$8.5 billion following intense negotiations.
The three private equity firms behind the buyout, Bain Capital Partners, the Carlyle Group and Clayton, Dubilier & Rice, said in a joint statement that they were pleased to have pulled off the deal "in the face of challenging conditions."
Such conditions did not exist before this month when private equity firms were falling over themselves to buy out companies and banks were willing courtiers.
Weisbach said the ongoing fallout will likely affect "the valuations and profitability of some of the deals done in the last couple of years."