BusinessWeek reports that the value of private equity deals tumbled 68% from the second quarter to the third as a liquidity crisis slashed the availibility of credit that makes such deals possible. While the absence of deals from the business headlines has been obvious, the extent of the damage is now clear.

The statistics are startling. Worldwide, there were just three buyouts of $1 billion or more during September, 10% of the 30 such deals reported in May. The trend was global, although it was most severe in the U.S. Global M&A in the third quarter slowed to $992.1 billion, down 43%, from $1.7 trillion a year earlier. The third quarter this year was still 24% higher than the volume of $799.5 billion during the third quarter of 2006. U.S. deal volume in fell nearly 50% during the third quarter, to $308 billion, down from $606 billion in the second quarter. But U.S. deal volume for the quarter was up 13%, from $274.1 billion a year earlier.

What's next? If the credit markets can find a way to reprice risk that's acceptable to private equity firms, acquisition targets, and investors in private equity loans then the deal business could revive. The recent closing of KKR's acquisition of First Data suggests that this is possible. Most likely, only the most conservatively structured deals will make it through this tighter credit sieve.

That means deal volume will not return to where it was and that investment banks -- which have invested so heavily in serving private equity firms -- will need to find new ways to make money.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.