With private equity firms flush with billions, the market has recently witnessed a wave of megadeals, such as the $21.3 billion buyout of HCA and the $16.2 billion purchase of Freescale (NYSE:FSL). So why not a $100 billion deal for Home Depot (NYSE:HD)? CEO Robert Nardelli wasted little time denying the rumors, but the buzz is not going away. Could such a deal happen?

Home Depot does have some attractive draws for a private equity deal. For one thing, the company has extensive real estate holdings, which can be used as collateral for debt financing. Real estate has been a hot sector for deals lately, including the recent $36 billion going-private transaction of Equity Office Properties Trust (NYSE:EOP). Ford (NYSE:F) was also able to leverage its hard assets to borrow about $18 billion.

In addition, Home Depot generates large amounts of fairly consistent cash flows from operations, with amounts ranging from $6.5 billion to $6.9 billion over the past three years. The company uses almost $4 billion of that cash each year for capital spending (to do things like build new stores). If a private equity firm bought the company, it wouldn't be a surprise to see these investments cut significantly.

Assuming a deal is valued at $100 billion, it would require a considerable amount of equity investment from private equity firms -- perhaps $10 billion or more. A variety of firms would need to collaborate and pony up several billion each.

The firms would certainly want the cooperation of Home Depot's management. It looks like Nardelli is not considering a going-private transaction at present, but things can always change. A hostile takeover is possible as well, though such transactions are time-consuming and expensive. Besides, a company like Home Depot has a myriad of defenses to ward off such attempts. There could even be political backlash over the possible job losses.

Yet for Foolish investors, such considerations are little more than noise. The focus should be on the company's fundamentals. Unfortunately, with a sluggish economy and real estate market -- as well as tough competitors like Lowe's (NYSE:LOW) -- Home Depot's performance has been fairly lackluster. In the third quarter, the company's profits dropped 3.1%. It's probably a good idea to avoid the stock until the rumor traders move to the next target.

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Fool contributor Tom Taulli does not own shares mentioned in this article. He is ranked 380 out of 14,555 players in Motley Fool CAPS.