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April 30, 2014

Metals M&A at Lowest Level Since 2008

Merger and acquisition activity in the global metals sector slowed significantly in the first quarter, falling to its lowest levels since 2008, according to the consulting firm PwC U.S. Largely attributable to a decline in steel transactions, many metals players put the brakes on deal-making as overcapacity and pricing remained a key concern, and instead focused on investing in the downstream segment of their businesses.

During the first quarter of 2014, there were 13 transactions valued at $50 million or more, totaling $3.3 billion. That's a 78 percent decline from the 20 deals worth $15.1 billion reported in the previous quarter, reports PwC. Deal activity was also down compared with the first quarter of 2013, which saw 21 deals worth $7.3 billion in total. One deal in this year’s first quarter worth $1.8 billion accounted for more than half of the period's transaction value. This compares to the three mega deals during the fourth quarter of 2013, accounting for nearly $4.5 billion in value. Average deal value in the first quarter dropped 66 percent to $255 million, from $757 million in the previous quarter.

"Given the overcapacity issues facing the global steel and aluminum industries, and the pricing uncertainty experienced in the past few years, metals companies have shied away from M&A activity to focus on investing in operational improvements and the development of more value-added products," says Sean Hoover, U.S. metals leader at PwC. "Despite this quarter's decrease, we believe the deal market will recover in coming quarters if global capacity and demand come more in line and the economies in the U.S. and Eurozone continue to strengthen."

Diverging from the most recent trend in which the steel category accounted for almost 75 percent of the total deal value in the fourth quarter, activity in the steel segment underperformed all the other segments and only accounted for $310 million or 9 percent of the total deal value during the first quarter of 2014. The "other" category, which includes copper, nickel and other non-precious metals, led deal value for the first quarter, representing $2.0 billion of the period’s total deal value. The iron ore segment accounted for $595 million of the quarter's total value, while the aluminum segment represented $375 million.

On a regional basis, Asia and Oceania led deal activity during the first quarter, accounting for nine transactions worth $2.6 billion or 80 percent of the deal value during the period. This activity included a mix of local, inbound and outbound deals, with local China deals dominating the M&A environment. There were three deals involving North America totaling $327 million, and four deals involving Europe, which accounted for $840 million.

"Strategic investors are consolidating around the globe to trim capacity, acquire better technologies and processes, and to streamline supply chains to improve their prospects when better pricing and end-user demand returns," says Hoover.

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Saturday, November 29, 2014