Industrial Products Companies Maintain Cautious M&A Approach in the Second Quarter, According to PwC US
Companies Focus on Organic Initiatives and Capital Investment to Drive Growth
Smaller, Non-Transformational Deals Lead the Way
NEW YORK, Aug. 1, 2013 /PRNewswire/ -- Overall merger and acquisition (M&A) in the global industrial products (IP) industry remained modest during the second quarter of 2013, as management teams maintained a risk-averse approach to large transactions, while continuing to emphasize internal investment and local market deals, according to PwC US. PwC's IP practice examined activity in the second quarter of 2013 across six sectors: aerospace & defense (A&D), chemicals, engineering and construction, industrial manufacturing, metals and transportation & logistics.
Across the entire IP industry, there were 153 transactions worth $50 million or more, totaling $49.3 billion in the second quarter, compared to 151 deals and $52.3 billion in total value during the first quarter of 2013. On a year-over-year basis, deal value and volume was down compared to 197 transactions totaling $69.9 billion in the second quarter of 2012.
The volume of mega deals (value exceeding $1 billion) remained at historically low levels during the second quarter of 2013 as investors focused on smaller, middle market transactions. The trend was particularly prominent in the engineering and construction industry, where deal volume increased 52 percent over the first quarter, but deal value declined 35 percent during the same period. There were a total of nine mega deals during the second quarter, compared to 12 mega deals in the first quarter of 2013. The year-to-date tally of mega deals reached 21 at the end of the second quarter, down significantly from the pace in 2012, which recorded 78 mega deals for the full year.
"Global industrial products companies have largely remained cautious in pursuing M&A activity, primarily due to continued uncertainty related to the global economy, as well as the direction of U.S. fiscal policy," said Robert McCutcheon, PwC's U.S. industrial products leader. "In line with the findings from our latest Manufacturing Barometer survey, companies are maintaining strong balance sheets and are focusing on supporting organic growth, while pursuing smaller, local market transactions. Bolt-on and synergistic deals that further strengthen product lines are leading the way. Bolstered by ample liquidity, we continue to expect a rebound in broader deal activity as the economic outlook becomes brighter and confidence levels improve."
Local deals continued to drive the majority of IP M&A activity in the second quarter of 2013, in line with the past two quarters. Leading the trend, local deals represented 92 percent of A&D transactions, and 71 percent of deal activity in the transportation and logistics industry in the second quarter. Across the global IP industry, there were 106 local deals worth more than $50 million in the second quarter of 2013, representing 69 percent of transaction volume, compared to 72 percent in the first quarter and 70 percent in the second quarter of 2012. Consequently, cross border deal activity remained low, representing 31 percent of total deal volume in the second quarter, but up from 29 percent in the first quarter.
The Asia and Oceana region accounted for 68 transactions representing 44 percent of total second quarter global IP deal activity, compared to 47 percent of total deal activity recorded in both the first quarter and the second quarter of 2012. There were 53 deals that involved North America across the IP industry during the second quarter, up notably on a sequential basis from only 43 in the first quarter, but down from 71 in the second quarter of 2012. Strength in North America M&A was notably visible in the engineering and construction sector, which witnessed 17 deals, while the industrial manufacturing segment posted 14 transactions.
"Ongoing infrastructure investment, mainly in developing nations, continues to add fuel to the global IP M&A market. The benefits of privatization have been particularly visible in the transportation and logistics M&A market, as companies look to garner a slice of airport construction projects, while aerospace transaction volume reaches record levels," continued McCutcheon. "We also saw some strength in select sectors in North America during the second quarter, especially in the U.S. We're beginning to witness the benefits of increased shale oil and gas production in the domestic M&A space, as energy end-market targets remain of interest to U.S. acquirers in the industrial manufacturing sector."
Strategic investors continued to drive the majority, or 71 percent, of deal activity across the industry during the second quarter, reflecting their focus on longer-term investment initiatives. Looking at select sectors, participation in M&A activity among strategic investors was strongest in the A&D and chemicals sectors during the second quarter. Conversely, financial investors represented 39 percent of second quarter transaction activity in the transportation and logistics industry, compared to 37 percent for all of 2012. They also increased their participation in the industrial manufacturing sector, representing 36 percent of activity, compared to 23 percent for all of 2012.
"Strategic investors continued to dominate deal activity given their longer-term horizons and their ability to tap the equity markets to support transactions, while conserving cash," said McCutcheon. "However, we also did see an uptick in select sectors among financial investors who also continue to benefit from a wide range of appealing financing alternatives."
For more information on PwC's Deals practice, visit www.pwc.com/us/deals.
About PwC's Industrial Products practice
PwC's Industrial Products (IP) practice provides financial, operational, and strategic services to global organizations across the aerospace & defense (A&D), business services, chemicals, engineering & construction (E&C), forest, paper, & packaging (FPP), industrial manufacturing, metals, and transportation & logistics (T&L) industries. For more information please visit: www.pwc.com/us/en/industrial-products
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SOURCE PwC US