Credit freeze may help corporate buyers: M&A chief

By Mark McSherry

NEW YORK (Reuters) - The tougher credit conditions and higher borrowing costs currently roiling markets are expected to scuttle some planned leveraged buyouts (LBOs) as private equity dealmakers find it harder to make the numbers work.

But the ongoing credit squeeze could actually be an opportunity for some corporate buyers to come back to the fore, according to Rob Engel, head of mergers and acquisitions at Wachovia Securities.

With easy credit and leverage, private equity firms have often had the upper hand against corporate buyers when bidding for companies during the past two years. So far this year alone, LBOs have made up more than a third of deals in the United States.

But now that financing is becoming tougher for LBO shops, corporate buyers, often with strong balance sheets, could return to prominence.

"The corporates, for a long period of time, have been at a competitive disadvantage to the private equity firms relative to the cost of capital and cheap financing the private equity firms could bring to the table," said Engel in an interview.

"The table is turning somewhat there, so I would think the corporates are in a position to be more competitive players."

Some of the largest deals in the past week have involved big corporate buyers.

On Monday, Transocean Inc. (RIG.N: Quote, Profile, Research, Stock Buzz), the world's largest offshore driller, said it would buy GlobalSantaFe Corp. GSF.N for nearly $18 billion.