Investors are always sniffing around the housing market for possible buyout deals. But some builders might now be more receptive to the right offer from private equity firms that have been on a buying spree of late.

Private equity firms raised more than $300 billion in new funds worldwide in 2006, and buyouts through Dec. 11 were up nearly 90 percent, to a record $635.8 billion globally, 57 percent of which were of U.S.-based companies, according to Dealogic, a financial data research company. “There's so much equity money out there, and there's got to be a home for some of it in the [housing] market,” says Samuel Hill, regional manager for the Dallas office of Calyon Corporate and Investment Bank, a division of Crédit Agricole, the world's sixth-largest bank. In December, Hill's office met with at least two private equity firms about their possible interest in the residential construction arena.

That builders and investors are at least pondering such scenarios was palpable at a home builders' conference in New York on Dec. 6, where the subject of takeovers and buyouts was broached more than once. That conference took place only days after newspapers rolled out rumors about two giant equity firms huddling with banks about acquiring The Home Depot. The estimated price tag: between $90 billion and $100 billion.

The current downturn in buyer demand for housing is forcing builders—particularly those with distressed assets or shaky balance sheets—to think harder about their competitive futures. “I compare the industry to a lunar module returning to Earth that's checking to see if its heat shields are still attached,” quipped Ara Hovnanian, CEO of Hovnanian Enterprises. However, neither Hovnanian nor officials from the other six builders at the conference—Toll Brothers, Standard Pacific, Lennar, Technical Olympic USA, Meritage Homes, and Beazer Homes—foresee much acquisition activity, at least not until the industry normalizes. “When everyone is searching for the bottom, deals don't happen,” says Jim O'Leary, Beazer's CFO.

However, given that public builders have been repurchasing their stock they insist is undervalued, Hill thinks private equity money might lure a builder whose existing managers want to take their company private, especially if that management has a significant ownership stake, and/or the CEO or chairman is getting on in years. “Think of the age of the principals and what their road is to the next liquidity event,” says Hill.