Here's the short version of a panel on private equity at Davos today: smaller new deals, rising defaults on older ones but no re-run of the mass defaults of the 1980s.

"Those (big) buyouts will come back in time, but money over next few years will be made not by doing new deals, but by improving companies they already have," said Carlyle Group founder David Rubenstein.

"There will be leveraged buyouts (in 2008), but deals will be smaller -- most likely $1, 2, 3, 4 billion deals as opposed to $30 to 40 billion deals," he said on the sidelines.

While there are some meaningful differences to the bad, old days - less aggressive structures and better resourced private equity firms - there are quite a few areas of concern.

The economy is turning sour, recent vintages of deals were highly leveraged in their own right and anyone hoping to refinance to buy time is likely to be disappointed. And while the lack of strong covenents on many deals will give them room to manoevre, eventually you gotta repay debt.

Still, we can all agree the next 18 months will be a very good test of private equity's vaunted management skills. If they come through this with their reputations and returns intact, they will deserve all the praise they get.

Someone remind me to write a nice story if it happens.

James Saft is a Reuters columnist. The opinions expressed are his own.

One of the better themes emerging at Davos is how everybody is mad at bankers. Here's the thinking - First they lose billions and billions of dollars making subprime loans, quite possibly bringing down the economy in the process, then they go and allow some kid trader to lose $7 billion dollars playing with matches, or, er derivatives, or futures or something.

And their bonuses just go up and up.

Heres one comment:

"I've got 200,000 employees working every day, many of them in factories, doing an honest job. What I do is about bricks and mortar," said a senior executive at one of the world's largest companies, who spoke on the condition of anonymity.

"But when I look at these bankers, I have to say that I'm a bit ashamed for them. There needs to be a little bit more common sense."

And another:

"Greedy bastards?" mused one head of an international holding company, who declined to be named.

"The guys in the real economy are out there managing factories and supply lines and product delivery. They're just chasing higher yields."

That's not what the companies were saying when the banks were passing out debt like candy, but we now live in different times.

At one session a man identifying himself as a former banker stood up and inveighed against his former colleagues for their greed and their bonuses. He spoke for a while, then stopped. Everyone looked at their shoes, then someone changed the subject.

I think this is a theme that will run and run.

(Ed's note: James Saft is a Reuters columnist. The opinions expressed are his own.)

Options trading aside, one of the best things about Nasdaq buying the Philadelphia Stock Exchange may be a lot of bull.

Earlier this month Nasdaq went so far as to have a bull rider ring its opening bell — but PHLX just brought in the real thing. A 2,000 pound bull named “TC” opened the Philly exchange, after entering through a loading dock (seen here with PHLX head Sandy Frucher).

Having already tapped the wealth of talent at CNBC three times this month — including The Big Idea host Donny Deutsch, the Mad Money crew and Fast Money’s Jim Cramer — Nasdaq could probably stand to switch it up a bit when it comes to bell ringing.

That’s where PHLX comes in. Besides TC — who rode the freight elevator — the plucky exchange’s bell has been rung by Civil War re-enactors and even Martha Reeves of the Vandellas (as in “Dancing in the Street”). Now that’s synergy.

The long-term impact of private equity was put under the spotlight at Davos on Friday.

For those without the time to plough through the extensive 169 pages from Harvard professor Josh Lerner and World Economic Forum’s Anuradha Gurung’s (which dissects research gathered from 21,937 LBO transactions across 19,500 firms) here’s the summary.

Some of its findings are:

Nearly 60 percent of private equity fund investments are exited more than five years after the initial investment and the length of time firms remain under control of private equity investors has increased in recent years.

Quick-flips — ie exits within two years of investment by private equity funds — account for 12 percent of deals and have decreased in the last few years.

6 percent of buyout transactions end in bankruptcy.

One of the study’s most keenly anticipated findings starts on page 43 — the report on jobs. Critics of private equity level that buyout firms ax costs in order to sell companies on rapidly, or “strip and flip” as UAW president Ron Gettelfinger once called it. A much-debated point is whether private equity cuts or creates jobs.  But the report’s answer isn’t that black and white. Here’s what it finds on employment:

Employment falls more rapidly in companies taken private in the wake of a private equity transaction — a 7 percent difference between a control group of companies.

However - this is partly offset by a 6 percent higher greenfield job creation in firms backed by private equity than the peer group studied.

“It appears that the job losses at target establishments in the wake of private equity transactions are partly offset by substantially larger job gains in the form of greenfield job creation by target firms,” the research said.

At least this report takes a thorough look at the sector. A report last week from the Private Equity Council only took a tiny slice of the market (42 companies bought by private equity firms) .

The pressure is now on brewers, such as Molson Coors and Foster’s, to perform better or look for deals after Denmark’s Carlsberg and Dutch brewer Heineken agreed a cash bid of 7.8 billion pounds ($15.3 billion) to buy and break up Britain’s Scottish and Newcastle. The bidders announced bigger projected cost savings than expected, with Heineken targeting annual synergy benefits of 120 million pounds by the fourth full year after the deal closes while Carlsberg looks for annual savings of 126 million pounds by year three. The deal values S&N at 14.3 times 2006 EBITDA for its mix of mature and fast-growing markets, well ahead of the last big deal in 2005 when SABMiller paid 10.6 times for Latin America’s Bavaria, but below the 14.7 times SABMiller agreed to pay for Dutch brewer Grolsch.

Google’s $3.1 billion takeover of ad firm DoubleClick is expected to get the go-ahead from European regulators, after it won U.S. approval in December. For 6 years it has given the green light to every all-U.S. merger that passed muster in Washington. A lawyer acting for a client concerned about the deal said it was “disappointing but true” that the Commission had not sent Google a “statement of objections” — a formal outline of its problems with the deal.

Billionaire Wilbur Ross is reportedly in serious talks to take over Ambac Financial Group Inc. Wilbur Ross said in December he was looking at investments in bond insurers. The U.K.’s Evening Standard reported on Thursday that he is in talks with Ambac that are “serious and progressing well.” New York’s insurance regulator said earlier that any plan to shore up the insurers that guarantee $2.5 trillion of bonds will take time because of the complexity of the issues and the number of parties involved.

Talk about an after-Christmas sale.

Restoration Hardware Inc. accepted 33-percent less than originally planned for a management-led buyout that included private equity firm Catterton Partners. Back in November, the retailer accepted a $6.70 a share, or $267 million takeover bid from Catterton.

That was just the beginning. Later that month,  Sears offered to buy the company for $6.75 a share.

That was before the global equity markets selloff that kicked off the year, as well as evidence that the deepening housing slump was pushing the U.S. economy into recession. 

Today the home furnishings chain agreed to a new bid from Catterton that values the company at $4.50 a share, or about $175 million.

But at least it got a $25 million loan for working capital, the chance to solicit other bids through February 28 and firmer commitments that the deal would close even if the retailer’s operating results weaken.

Restoration Hardware said in a filing with the U.S. Securities and Exchange Commission that there was no assurance that any other company — including Sears — would submit a better proposal. Sears declined to comment.

In a letter to employees that was addressed to “Team Resto,” Restoration Hardware Chief Executive Gary Friedman said the lower deal price was “primarily due to continuing macroeconomic pressures and the difficult environment for home furnishings retailers, which has affected financial performance across our industry.” He signed the letter “Carpe Diem.”

Restoration Hardware recently said that sales for the nine-week holiday period ended January 5 — normally the biggest season for retailers — totaled $171.5 million. That marked a drop of 1 percent for the 2007 holiday season, compared with a 22 percent increase in sales during the 2006 holiday season.

The retailer said seasonal sales it had anticipated in gift items during the final days of the holiday shopping season did not materialize, which added to softness in its “decorative accessories business.”

Carpe diem. Seize the sale.

The private investment industry may be finding it tougher to strike deals, but it ain’t running out of ideas.

With financing from JP Morgan, a team led by former Viacom executive Thomas McGrath and British theater producer John Gore have bought a chunk of business from live music company Live Nation, including the promoter of Broadway shows, Broadway Across America, for $90.4 million.

The success of the firm’s business, which puts on Broadway hits across America, will be down to skillful marketing and producing shows from the ground up, McGrath told the NYTimes.  

Outside equity interest in Hollywood hasn’t been so hot of late, a recent report in Variety said, with banks having bigger problems like writedowns on their hands.

With the entertainment industry reeling from strikes and a potential recession around the corner, entertainment may be a higher risk investment than a year ago.  Or maybe this is exactly the kind of environment where people want to be cheered up with a show.

Who said M&A was dead? Asia Pacific took up the charge for global mergers in January, and the United States put in an impressive performance considering the credit and mortgage crises that have seized global financial markets. Leveraged buyouts, however, are way down on last year.

The 2008 year-to-date M&A statistics from research firm Dealogic show that Asia Pacific is the only region in the world to surpass the same period of last year.

Asia Pacific mergers are up an impressive 78 percent with $39.5 billion of announced deals compared to $22.1 billion for the same period of 2007. China, Japan and Indonesia account for 52 percent of that volume.

One of the biggest deals came last week when Indonesia’s PT Bakrie & Brothers Tbk said it plans to raise $5.4 billion to buy stakes in three affiliates, putting the Bakrie family’s mining, energy, and property interests in one holding company.

In the United States, M&A volume is down 28 percent so far this year but is still at a reasonably healthy $42.8 billion despite the crises in financial markets. That figure was helped on January 16 when software maker Oracle Corp won a three-month-long campaign to buy BEA Systems Inc by raising its bid for the company by 14 percent to $8.5 billion.

Leveraged buyouts and private equity deals remain well and truly in the doldrums, though.

Global financial sponsor buyouts stand at $8.3 billion year to date, down a whopping 61 percent from $21 billion at this stage of 2007, the slowest start to a year for such deals since 2004.

It all adds up to a remarkably resilient global M&A volume of $141.2 billion year to date, down only 11 percent from $159 billion at this stage of 2007. This is the slowest start to a year for global M&A since 2005, but with financial markets in their current state, it is a surprisingly strong performance.

(Reporting by Mark McSherry)

It’s shaping up to be the biggest case of internal bank fraud ever. The 4.9 billion euro ($7.1 billion) loss that Societe General said it lost because of one trader’s fraudulent activities dwarfs the $2.6 billion of Sumitomo Corp copper trader Yasuo Hamanaka and the $1.4 billion that Nick Leeson lost at Barings combined. Barings is long gone, having been salvaged by ING, but Sumitomo survived. SocGen said it would raise 5.5 billion euros to shore up its balance sheet, and its stock fell 6 percent. It’s possible the hit could make it a more attractive acquisition target, lowering a potential bid price, though tough questions will have to be answered.

A few extra hours is all Carlsberg and Heineken should need to finalize their joint breakup bid for Scottish & Newcastle, according to a source close to the deal. “This is purely an extension to finalize the deal, all the main questions are answered. The teams have been working through the night and they need just a little longer to complete the deal.” Britain’s biggest brewer reaffirmed the price of the deal will be unchanged at 800 pence an S&N share.

Google Inc’s search engine will feature on NTT DoCoMo Inc handsets, giving it access to 48 million new mobile Internet users in Japan in its push for overseas growth. DoCoMo, Japan’s largest mobile operator, said the tie-up on Internet searches, e-mail and other services, will help it retain users in a competitive market and raise advertisement revenue while cutting development costs. Google has already partnered with Japan’s No. 2 mobile phone company KDDI Corp. DoCoMo and KDDI together control over 80 percent of Japan’s mobile market.

Morgan Stanley's vice chairman for institutional securities talks about the impact of market turmoil on global dealmaking.

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