Q2 2010 Deal Activity in Metals Sector Shows Continued Improvement Over 2009, According to PricewaterhouseCoopers

NEW YORK, Aug. 5 /PRNewswire/ -- The merger and acquisition (M&A) deal activity in the global metals industry in the second quarter of 2010 shows further improvement, as measured by deal value, from the uptick seen in the first quarter of 2010, according to the PricewaterhouseCoopers LLP report, Forging ahead: Second-quarter 2010 global metals industry mergers and acquisitions analysis.

A notable trend in the metals sector during the second quarter of 2010 was the migration of M&A activity away from the small and middle segments of the market toward larger transactions. This movement was exemplified by five announced "mega deals," categorized as deals with a disclosed value of at least $1 billion, which equals the total number of announcements for all of 2009 and more than doubles the two mega deals announced in Q1 2010.  

This increase in mega deal activity helped bolster the $16.8 billion value of deals announced in the second quarter, which represents the highest total since the second quarter of 2009.  This trend represents reason for optimism, as potential acquirers continue to focus less on internal cost and liquidity initiatives associated with the recent downturn and instead, show signs of improved confidence and engagement in larger strategic acquisitions.

While deal value rose in Q2, the 20 deals announced remained on par with the 22 deals announced in Q1 2010, and total 2010 deal activity accounted for over two percent of M&A activity across all industries. These trends indicate that the M&A activity may be more closely associated with fluctuations in commodity prices rather than general economic recovery, as is evidenced by the fact that metals M&A contribution has mostly increased since the early- to mid-2000's, mirroring a generally strong commodity price environment.

"It does seem clear that we are entering a period in which more buyers are looking to augment organic growth opportunities through a variety of M&A strategies beyond the backward integration that has driven recent quarterly totals," said Bob McCutcheon, U.S. metals leader at PricewaterhouseCoopers. "We believe that this trend in activity is a positive indication for future deal flow, contributing to our relatively optimistic outlook for metals M&A activity over the second half of 2010."

The regional distribution of deals for the second quarter indicates a relatively high level of participation by both acquirers and targets in the Asia and Oceania and South America regions.  The former has been driven by Chinese entities acting as consolidators of the domestic metals sector, while the latter has been driven by Brazilian entities, several of which have been targeted in efforts to purchase mining assets.

"In keeping with our previous expectations, steel and iron ore deals remain the primary driver of sector activity.  Interest in steel and iron ore is likely to continue and may be supported by the industry movement toward quarterly iron ore pricing," said Jim Forbes, PricewaterhouseCoopers global metals leader.  "Such pricing could enhance the desire of Chinese companies to mitigate supply risks by engaging in mining deals."

Capturing Synergies to Maximize Deal Value

The second quarter Forging ahead report takes a closer look the importance of the merger integration planning process, especially in today's recovering economy. Metals companies must balance a desire to quickly reach the finish line with a need to systematically leverage synergies and contain costs.

For metals companies, there are usually obvious synergies based on production capabilities and raw material supply. However, because most metals deals are cross border, there is an added complexity of not only integrating the operations, finances and business processes but also harmonizing or even redefining culture.  The integration of two metals companies also requires careful supply chain analysis to ensure end-to-end coordination so that the new company realizes the benefits of the transaction.

Closing deals is tough, but capturing deal value is even tougher.  In some ways, deciding whether to go forward with a merger or acquisition is the easy part, and the act of "owning" after the transaction is complete is the real challenge.  In the end, the market will reward or punish shareholders of the combined company depending on how well its management succeeds at achieving stated deal objectives.  For this reason, it is imperative that synergies are realized, deal value is captured, and the resulting performance is communicated to all those with a stake in the outcome.

For information on Forging ahead and to access the full report, including the special section on merger integration planning and capturing synergies to maximize deal value in the metals industry, visit: www.pwc.com/us/industrialproducts.

About PricewaterhouseCoopers' Global Metals practice

PricewaterhouseCoopers' Global Metals practice is composed of a worldwide network of industry professionals serving metals clients and strategically located in more than 30 countries. PricewaterhouseCoopers services global clients involved in ferrous and nonferrous primary and secondary metals production by bringing experience, leading international industry practices, and a wealth of specialized resources to help solve business issues.

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SOURCE PricewaterhouseCoopers