Return of Mega Deals, Divestiture Activity, and Renewed Financial Investor Interest Drives Global Metals M&A Value to $18.2 Billion in Third Quarter of 2011, According to PwC US

Asia and Oceania Region Continues to Lead Overall Deal Volume and Value Steel Transactions Contribute Nearly 68% of Activity

Nov 03, 2011, 07:00 ET from PwC

NEW YORK, Nov. 3, 2011 /PRNewswire/ -- Despite headwinds like the impact of significantly declining aluminum prices on available capital and the weak construction market's impact on the steel industry, encouraging signs—like increasing cash balances and continued historically low interest rates— are emerging in the global metals industry.  These findings are among those in Forging ahead, a quarterly analysis of merger and acquisition (M&A) activity in the global metals sector by PwC US.  

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In the third quarter of 2011, there were 23 deals worth $50 million or more in the global metals industry, accounting for $18.2 billion in transaction value. This compares to $53.4 billion in transaction value during the third quarter of 2010, which included 10 more deals. When compared to the second quarter of 2011, deal volume fell by 17 transactions while total deal value increased substantially from $8.2 billion.

Average deal size for the third quarter was $800 million, driven largely by three mega deals (deals valued at $1 billion or more) that combined for $12.6 billion. Third quarter average deal size increased almost fourfold from $200 million in the second quarter of 2011, which had an absence of mega deals.

"Metals M&A activity demonstrated mixed signals during the third quarter of 2011. After an absence of mega deals in the second quarter, three were announced in the third quarter – and the industry experienced a substantial increase in divestitures as metals companies shed non-core or underperforming assets," said Bob McCutcheon, U.S. industrial products and metals industry leader at PwC. "We're also seeing financial investors returning to the table with a larger share of deal activity in the third quarter; however, given the recent decline in aluminum prices and concerns for global macroeconomic growth, we believe the deal recovery will pause until some of the major global economic concerns are alleviated and industry fundamentals begin to rebound."

The majority of deals worth $50 million or more during the third quarter of 2011 resulted from M&A targets classified as steel manufacturers, which contributed almost 68 percent of deals in the third quarter. "The emphasis on deals involving steel manufacturers makes sense as steel is a more fragmented part of the metals sector.  Accordingly, this segment is likely to see more consolidation and create economies of scale for market expansion and cost reduction," continued McCutcheon.

For deals worth $50 million or more, the Asia and Oceania region experienced the greatest overall deal value in 2011 with a total of 65 deals valued at $29.4 billion for the first three quarters, followed by North America with $8.3 billion in deal value.  Of the 65 deals in the Asia and Oceania region, 44 were domestic deals totaling $20 billion, accounting for two-thirds of the worldwide total of $30.2 billion in the first three quarters of 2011, versus seven North American domestic deals totaling $6.2 billion.

"Asia and Oceania continues to dominate global domestic deal value, and we expect that trend to continue as Chinese companies find it beneficial to combine and achieve economies of scale," noted Jim Forbes, global metals leader at PwC. "Also, we expect that Asia and Oceania will see significant inbound activity as companies in other regions seek a foothold in emerging nations."

According to PwC, for the first time since 2009, acquirers from advanced economies captured a larger portion of deals than those from emerging economies with 52 percent versus 48 percent of deal activity, respectively. Continued PwC's Forbes, "Investors in advanced economies may decide to use the cash retained through cost-cutting and the divestment of noncore assets to acquire assets they hope will be more productive."

Europe remained the primary driver for outbound deals in the first three quarters of 2011 with five deals valued at $2.8 billion. For inbound deals, Asia and Oceania led with $7.7 billion of the $10.3 billion worldwide total.

For a copy of Forging ahead, PwC's quarterly analysis of M&A activity in the global metals sector, please visit:

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