Private equity is a $2 trillion tsunami

With companies like Equity Office Properties (NYSE: EOP) and Harrah's (NYSE: HET) getting bought out, it seems that just about any company is in play.

A big reason is that there is a tremendous amount of debt capital in the global markets. What's more, the debt is fairly cheap and does not have tough contractual terms.

But, there is another key part of the puzzle: private equity firms have raised a huge amount of capital. In fact, according to a recent report from Credit Suisse, the potential buying power for private equity is a stunning $2 trillion.

And, there's a good chance that the money will be put to work over the next few years. The main reason is the compensation structure for private equity firms. Basically, the portfolio managers typically make 20%-25% of the profits from the overall portfolio. So, to get this, it makes a lot of sense to start the dealmaking as soon as possible.

OK, so what can $2 trillion buy? Well, according to Credit Suisse, it could take out about 20% of all US and European companies with market caps under $30 billion.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.