Industrial Products M&A Activity Surges in Second Quarter, According to PwC US

NEW YORK, Aug. 5, 2014 /PRNewswire/ -- Merger and acquisition (M&A) deal activity surged across the global industrial products (IP) industry during the second quarter of 2014, according to PwC US. There was a significant uptick in both deal volume and value across the majority of sectors on both a sequential and year-over-year basis, with larger deals and cross-border activity picking up. PwC's IP practice examined deal activity in the second quarter of 2014 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.

"As the global economy recovers and the competitive environment intensifies, we are seeing a widespread increase in M&A activity, including a more confident base of business leaders taking a risk-tolerant approach to deal-making," said Robert McCutcheon, U.S. industrial products leader, PwC. "While the M&A market continues to be driven primarily by local deals aimed at strengthening core products and services, we are beginning to witness a rebound in cross-border activity as acquirers search for opportunities in faster-growing, but more volatile markets. As deal multiples continued to move higher, deal sizes have grown, elevating execution risk and narrowing the path to capturing value on investment. We are also seeing an interest in acquiring tools that enable innovation, including key technology and intellectual property. As sector consolidation begins to ebb, we believe this will become an increasingly larger component of the deal environment in the year ahead."

Across the entire IP industry, there were 223 transactions worth $50 million or more, totaling $148 billion in the second quarter of 2014, compared to 173 deals and $56 billion in total value during the second quarter of 2013. Overall deal activity in the second quarter of 2014 was also up notably over the first quarter of 2014, which recorded 169 deals totaling $68 billion. Every sector posted a sequential increase in deal volume during the second quarter of 2014, while five of the six sectors in the study posted year-over-year increases in M&A value for the period.

Industrial manufacturing was the most active sector during the second quarter, with 62 deals totaling $61 billion, up substantially from 36 deals valued at $10 billion in last year's comparable period. The transportation and logistics industry was also active with 51 deals valued at $20 billion during the second quarter, up from 39 deals valued at $17 billion in last year's second quarter. Rounding out the top three sectors for M&A activity, the chemicals sector recorded 40 transactions valued at $12.5 billion during the second quarter, up from 17 deals valued at $5.4 billion in last year's comparable period.

Deal sizes continued to grow during the second quarter of 2014 and the IP industry is now on track to post the strongest year for total deal value since the onset of the economic crisis. Overall, average deal value increased substantially to $720 million from $320 million in last year's second quarter and $400 million in the first quarter of 2014. All told, there were 26 mega deals (transactions worth more than $1 billion) worth $110.1 billion across the IP industry during the second quarter, compared to ten mega deals worth $19.6 billion in the second quarter of 2013 and 17 deals worth $29.5 billion in the first quarter of 2014. The industrial manufacturing sector led the group with 11 mega deals during the second quarter followed by five mega deals in the chemicals sector and four mega deals in the aerospace and defense sector.

Local deals continued to drive the bulk of M&A activity in the second quarter of 2014, but cross-border M&A activity continued to increase both sequentially and year-over-year. Overall IP cross-border deals represented 39 percent of total deal activity during the second quarter of 2014, compared to 32 percent in both the year-over-year and sequential comparative periods. At the same time, there has been a modest reduction in the volume of horizontal deals, as acquirers search for deals outside of their core industries. Horizontal deals dropped to 26 percent overall M&A activity during the second quarter from 35 percent in last year's second quarter and 31 percent in the first quarter.

"As management teams and investors search for growth, we are seeing an increased interest in overseas deal activity," said McCutcheon. "However, global expansion brings with it increased exposure to risks – from compliance, to supply chain to integration and tax complexity. As a result, we are having more in-depth conversations on the pros and cons of cross-border M&A strategies, especially given continued uncertainty regarding longer-term global economic prospects."

While companies are beginning to show more interest in overseas expansion, North America continues to stand out as a healthy and stable market. This is in line with PwC's most recent Manufacturing Barometer, which showed positive sentiment toward the prospects of U.S. commerce in the next 12 months, reaching 65 percent up from 63 percent in the second quarter of 2013. During the second quarter, North America experienced healthy inbound deal activity, primarily from Asia-based acquirers. Asia and Oceania remained the most active regions for M&A activity in the second quarter, recording 114 deals worth more than $50 million with a total value of $56.5 billion. Europe followed with 76 deals valued $77.7 billion, while North America generated 67 deals totaling $57.4 billion during the second quarter.

Strategic investors continued to drive the majority of deal activity across the IP industry during the second quarter, but participation among financial acquirers rose to 35 percent from 33 percent in last year's second quarter and 26 percent in the first quarter of 2014. This trend dovetailed with a moderate increase in debt financing for deals over the past year. "We are continuing to see an increase in sales of legacy investments from private equity firms," McCutcheon noted. "As they monetize more mature holdings, they have stepped up their pursuit of acquisitions, supported by ample fundraising and a highly accommodative financing market. We believe this is also adding to the rise in deal multiples as competition among acquirers increases globally, a trend that will likely continue in the year ahead."

PwC's IP M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters.

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. With more than 31,000 professionals located in over 150 countries, PwC's IP global professionals deliver a wide range of industry-focused tax, assurance, and advisory services to address critical business issues. For more information please visit: www.pwc.com/us/en/industrial-products

About PwC US
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SOURCE PwC US