Who Will Private Equity Target Next?

While all the private-equity firms seem to be coining money, Cramer wanted to find a way for Home Gamers to piggyback on the trend. These are the guys that buy up ailing companies, whip them into shape and then sell them off at a hefty profit. Often times this involves taking public companies private. So who does Cramer think could be the next target?

As part of a new series throughout this week, Cramer is going to reveal what he thinks are the most likely takeover targets for private equity. Six names in all. But first it’s important to understand how this market works.

PE firms are doing massive leveraged buyouts as a result of easy credit and growing war chests. Cramer says that they raised about $275 billion in 2005 and 2006, and they’re should see as much as $100 billion in the first half of this year alone. And if they want to keep the money rolling in, private equity has to continue to do what it does best: buy companies.

That’s where Cramer comes in. He set to work figuring out what these firms look for in a takeover target – and he’ll be sharing his findings all week. The most important thing he says PE guys look for is poorly run companies that still generate lots of cash. So any company without strong cash flow is off the table. They’re looking to increase margins or grow sales better than the current management. If they can fire workers, reduce benefits or break up the company, then they will probably bite.

Bottom Line: Any company that fits the profile of a private equity takeover target should get a higher multiple, whether it gets taken over or not. If you want to try this at home, just look for those companies with weak operations and strong cash flows. If you want Cramer to figure it out for you, keep reading Mad Cap.

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