The closure of the credit markets for private equity has given corporates the chance to trump their beleaguered buyout rivals.

In the past few years, private equity has enjoyed a run on mergers and acquisitions, fuelled by frothy debt markets, which has made it nigh on impossible for normal corporate buyers to compete. That is because private equity buys companies using mostly debt and, since 2003, banks have been desperate to lend. While corporates typically shy away from leverage, private equity often piles on debt on multiples of eight times a company’s earnings to see off rivals.

As jitters over the collapse of the US sub-prime loans market has spread to the leveraged finance sector, banks have been stuck with billions of dollars of loans. As a result, they have shut up shop for new debt and private equity firms have been left out in the cold.

Yet private equity’s misfortunes are already proving fruitful for some corporates. Within recent weeks corporates, including Imperial Tobacco, Continental and PPG, have taken advantage of the credit market squeeze to come up from behind and clinch victory. Imperial raced ahead with an agreed bid for Altadis, of Spain, as soon as it heard of finance issues hurting a rival offer from CVC, the buyout firm. Continental, of Germany, pipped TRW, which is majority-owned by Blackstone, in the €12 billion battle for Siemens VDO. PPG Industries beat private equity by agreeing to pay $3 billion for SigmaKalon, the Dutch coatings producer.

Yesterday, John Malone, the US media mogul, said that he was considering entering the $23 billion battle for Virgin Media, as the credit market turmoil makes it harder for buyout firms to compete.

Bankers predict a continued emergence of corporate buyers as, despite being jittery, the corporate credit markets remain open for deals. The question is, for how long?

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