For midmarket private equity investors, the absence of leverage wasn't nearly as pronounced as in the megabuyout sector. Until last September, when Lehman Brothers Holdings Inc. collapsed, the middle market enjoyed some runway before feeling the deleterious effects of the crisis, in part because smaller deals generally involve more modest debt multiples. But when volumes did drop in the first quarter of this year, they dropped precipitously (See table, below).

Difficult economic conditions forced many sponsor-backed businesses with heavy debt loads into restructurings or defaults. "We're reaping the harvest from the good times," says Tom Draper, an attorney with Ropes & Gray LLP.

Private equity shops with dry powder struggled, and sometimes managed, to put capital to work. But without access to debt, sponsors typically paid for all-equity deals and worked all the angles.

Some dabbled in private investments in public equities, developing structured PIPEs as a way of gaining bigger stakes in companies while financing markets remained virtually shut and valuations were unstable. In April, for example, New York buyout firm New Mountain Capital LLC supported a $60 million rights offering by software company Deltek Inc. The investor already owned 57% of the Herndon, Va.'s company's common shares, but by investing more money, it could boost its stake to 71% if no other stockholders participated in the offering.

Even buyout giant Kohlberg Kravis Roberts & Co. had its own interesting, if more complex, take on PIPEs. In September, it closed a $288 million investment in Eastman Kodak Co. through secured, nonconvertible notes for which KKR is getting a 10.5% interest rate. KKR's warrants, coming at a nice discount to the stock the day it closed, entitle KKR to an 11% stake in Kodak.

Investing in financial institutions, healthy or otherwise, has generated more noise than actual transactions to date, given the considerable regulatory uncertainties such deals face. One recent transaction may serve as a template of sorts for investors. Last month, Aquiline Capital Partners LLC, New Mountain and TPG Capital said they are swapping their stock in Tygris Commercial Finance Group Inc., a commercial finance and leasing company, with EverBank Financial Corp., a Jacksonville, Fla., thrift and mortgage lender. The $535 million stock-and-cash deal will give the sponsors a 37% stake in EverBank without a single investor owning more than 10%. Whether it passes regulatory muster remains to be seen.

As credit markets have eased in recent months, take-privates have gradually returned but are still few and far between. In October, Advent International Corp. closed a $380 million take-private of Charlotte Russe Holding Inc., about a year after the women's apparel retailer rejected an offer from KarpReilly Capital Partners LP and H.I.G. Capital LLC. H.I.G. is undertaking its own take-private, buying pharmacy services company Allion Healthcare Inc. for about $278 million, following an auction.

With improvements in leveraged-financing markets and the recent opening of the window for initial public offerings, sponsors might even begin to arbitrage exits between secondary buyouts versus IPOs. For now, the more attractive, healthier companies have managed successful listings, though values remain volatile and the size of the capital raised tends to be modest, with a few exceptions. Proceeds have generally been earmarked for debt repayments, but sponsors have been able to sell shares in the IPO for -- in not a few cases -- significant gains.

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