M&A Activity in Metals Far Behind Pace of ’08
PricewaterhouseCoopers’ Global Metals practice serves clients involved in ferrous and nonferrous metals worldwide. For more information, visit: www.pwc.com/us/industrialproducts.
The number of deals announced in the global metals industry during the second quarter of 2009 declined from the first quarter and remained far below the pace of 2008, according to a new PricewaterhouseCoopers LLP report, Forging ahead: Second-quarter 2009 global metals industry mergers and acquisitions analysis.
Tracking transactions from mining through production and distribution worldwide, the consulting firm reports that 34 deals worth $50 million or more were announced in the first half of 2009, down from 139 deals for all of 2008. Based on that deal volume, 2009 was on pace to fall short of 2008 numbers by 50 percent.
This contrasts with a high level of deal value announced during the first half of 2009, almost equaling the deal value announced during all of 2008. However, the primary contributor to this level of value was the announcement of one large deal—the $58 billion 50-50 iron ore joint venture between BHP Billiton and Rio Tinto.
The potential for incremental large deal activity during the balance of 2009 remains limited, analysts say, though the debt market has become more accommodating for investment-grade and high-yield corporate issuers compared with the first half of 2008.
“We expect that new announcements will continue to be strategic in nature, including deals that enable the acquirer to vertically integrate or gain exposure to attractive mining assets,” says Robert McCutcheon, U.S. metals leader at PricewaterhouseCoopers.
The Asia & Oceania region dominated activity during the first half of 2009, comprising 71 percent of total deal volume and 94 percent of value as M&A targets, and 85 percent of total deal volume and 95 percent of value as acquirers. Cross-border deals are on the decline as local-market deals take precedence. In the first half of 2009, local-market deals comprised 62 percent of transactions, while cross-border deals made up 38 percent of the total.
Strategic investors continue to dominate the deal landscape for metals targets, accounting for almost 99 percent of deal value announced during the first half of 2009, according to the report. This is an increase from 2008, when strategic investors accounted for 75 percent of deals. Strategic investors are likely to continue to account for the majority of announced deal value, rather than financial investors, because of restraints on credit and the rationale for building scale and consolidation.
The PricewaterhouseCoopers report also takes a deeper look at China specifically, including the country’s continued influence on the global economy, as well as the challenges and opportunities that exist for companies looking to initiate or expand existing business with China. “China’s reported 7.9 percent growth for the second quarter of 2009 is creating hope that the world recession may be easing,” says Jim Forbes, global metals leader at PricewaterhouseCoopers. “Often the companies that are best positioned to succeed are those that understand China’s strategic development priorities and approach Chinese business relationships as partnerships, rather than the traditional investor-investee transactions.”
For U.S. companies struggling through the recession, China’s gross domestic product growth rate, which forecasters in China and the United States now expect to approach or even exceed eight percent for 2009, is enticing. So, too, are the hundreds of billions of dollars China has committed to bolster its domestic demand and pursue investment in a multilayered economic stimulus effort.
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