NEW YORK, April 25, 2013 /PRNewswire/ -- Following a modest advance in the fourth quarter, merger and acquisition (M&A) in the global industrial products (IP) industry slowed during the first quarter of 2013, as companies stepped back to evaluate their growth strategies amid continued uncertainty related to the global economy, as well as potential impacts of changes to tax and budget policies in the U.S., according to PwC US. PwC's IP practice examined activity in the first quarter of 2013 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.
Across the entire IP industry, there were 136 transactions worth $50 million or more, totaling $49 billion in the first quarter, compared to 252 deals and $90.4 billion in total value during the fourth quarter of 2012. On a year-over-year basis, deal value and volume was down compared to 181 transactions totaling $88.6 billion in the first quarter of 2012.
The number of mega deals (value exceeding $1 billion) remained low during the first quarter as investors focused on smaller, middle market transactions. There were a total of 12 mega deals during the first quarter, compared to 18 mega deals in the fourth quarter of 2012. The first quarter mega deal tally is well below the pace of 2012, which witnessed a total of 74 mega deals for the full year.
"The M&A environment across the global industrial products industry slowed during the first quarter as companies took a more risk-averse approach to deal-making given continued uncertainty related to the global economy and U.S. fiscal policy," said Robert McCutcheon, PwC's U.S. industrial products leader. "We remain cautiously optimistic about the M&A market for the remainder of the year given strong balance sheets, pent-up demand in select sectors, underlying investment in infrastructure across many markets and healthy activity in terms of deal due diligence. This correlates to our recent CEO survey, where we found that U.S. CEOs are more intent on M&A in 2013."
Strategic investors continued to drive the majority, or 72 percent, of deal activity across the industry during the first quarter, reflecting their focus on longer-term investment initiatives. Looking at select sectors, strategic investors drove 86 percent of M&A activity in the chemicals sector during the first quarter and 80 percent of A&D deals during the same period. In addition, strategic investors represented 77 percent of transportation and logistics transactions during the first quarter.
Conversely, financial investors represented 44 percent of first quarter transaction activity in the metals industry, compared to 31 percent for all of 2012. Financial investors also increased their participation in the industrial manufacturing sector, representing 39 percent of activity, compared to 22 percent for all of 2012.
"Strategic investors continued to dominate activity bolstered by rising stock markets and the increasing use of equity to fuel transactions," continued McCutcheon. "At the same time, we are continuing to see steady participation from financial investors, who are taking advantage of their strong balance sheets and the availability of attractive financing alternatives. However, even though they are facing less corporate competitive pressure, financial investors are still pursuing deals in a cautious way."
The general rise in stock markets is also giving a relative advantage to strategic acquirers, as these companies are increasingly using stock to fund transactions. For example, in the transportation and logistics sector, close to nine percent of first quarter transactions involved stock swaps, almost doubling from four and a half percent for all of 2012. In addition, stock swaps accounted for 14 percent of first quarter deal activity in the chemical sector, compared to 10 percent for all of 2012.
Local deals continued to drive the majority of IP M&A activity in the first quarter of 2013. For example, local deals represented 78 percent of engineering and construction transactions, and 67 percent of deal activity in the metals industry in the first quarter. Across the global IP industry, there were 115 local deals worth more than $50 million in the first quarter, representing 69.9 percent of transaction volume, compared to 68.5 percent in the fourth quarter of 2012 and 59.6 percent in the first quarter of 2012.
Cross border deal activity continued to slow, representing 30 percent of total deal volume in the first quarter, a decrease from 37 percent for all of 2012 and 38 percent for all of 2011. The exception to the trend occurred in the A&D industry, where cross border deals accounted for 50 percent of first quarter transactions, up from 34 percent for all of 2012 and 33 percent for all of 2011, as companies held back on local transactions primarily due to sequestration concerns.
"As we saw in our Q1 2013 Manufacturing Barometer, we have witnessed a pull-back in overseas expansion plans as management teams focus on building market share in a competitive domestic market. At the same time, we are seeing a notable advance in research and development spending, as companies seek to support organic growth. It is clear that companies are keeping their cash closer to home as they evaluate the outlook for world markets," added McCutcheon.
Asia and Oceana continued to attract the most M&A activity with 63 transactions representing 46.3 percent of total first quarter global IP deal activity. In the U.S., there were 26 deals across the IP industry during the first quarter, compared to 65 U.S. deals in the fourth quarter of 2012.
Looking at overall activity across select sectors, the pull-back was prevalent in the A&D sector, where first quarter deal value represented an annual rate of less than $6 billion compared to the 10-year average of around $20 billion. Overall, there were 10 A&D deals worth more than $50 million with a total value of $1.4 billion in the first quarter, compared to 14 deals valued at $8.8 billion in the fourth quarter of 2012. First quarter deal activity also slowed considerably in the metals industry with 18 deals worth $50 million or more accounting for $6.8 billion in total value, compared to 29 total deals which generated $12 billion in the fourth quarter of 2012. In addition, chemicals industry M&A declined substantially in the first quarter with 22 deals worth $50 million or more valued at $5.3 billion, compared to 40 deals valued at $17.3 billion in the fourth quarter.
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