Smaller, Local Deals Drive Industrial Products M&A Activity in First Quarter, According to PwC US

NEW YORK, April 28, 2014 /PRNewswire/ -- Merger and acquisition (M&A) deal value in the global industrial products (IP) industry rose significantly on a year-over-year basis during the first quarter of 2014, according to PwC US.  While the increase in deal value was driven by mega deals (transactions worth more than $1 billion) compared with the first quarter of 2013, the majority of deal volume was a result of dealmakers executing on smaller, local deals. PwC's IP practice examined deal activity in the first quarter of 2014 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.

"While confidence among management teams is improving as the global economy gradually recovers, acquirers have remained cautious and are mostly looking to pursue primarily small, local deals," said Robert McCutcheon, U.S. industrial products leader, PwC. "Management teams continue to focus on organic as well as inorganic growth but are cautious about investing on a larger scale. Acquisitions are focused principally on investing in core products and services in an effort to expand market share, while also delivering direct returns to shareholders via dividends and share buy-backs. Deal multiples have increased, which has advantaged strategic investors that can use their stock as currency to fund M&A activity.  As the overall global economic recovery continues to take hold and more established markets gain their footing, we believe the IP space will see an increase in deal activity as companies ultimately recognize the need to participate in faster growing markets globally."

Across the entire IP industry, there were 156 transactions worth $50 million or more, totaling $64.7 billion in the first quarter of 2014, compared to 159 deals and $54.6 billion in total value during the first quarter of 2013. Transportation & logistics was the most active sector in the first quarter, representing 37 transactions worth $50 million or more, totaling $16.1 billion. The industrial manufacturing sector finished second with 33 deals totaling $14.7 million, followed closely by the engineering and construction sector with 32 transactions valued at $15.2 million. "We're closely following the level of M&A activity and potential for growth in the engineering and construction space as the global shift in economic power and urbanization could further drive interest in infrastructure build," added McCutcheon.

There was a year-over-year increase in the total number of mega deals in the IP industry during the first quarter of 2014, with 18 mega deals worth $34.9 billion, compared to 13 mega deals worth $24.6 billion in the first quarter of 2013. There were five mega deals in the chemicals sector valued at $6.4 billion during the first quarter, while three IP sectors – engineering and construction, industrial manufacturing and transportation and logistics – each recorded four mega deals. The A&D industry was the only sector that did not record a mega deal during the first quarter of 2014, as was the case during last year's first quarter.

While local deals continued to drive the bulk of M&A activity in the first quarter of 2014, there was a pick-up in cross-border transactions both sequentially and year-over-year. The gain was primarily driven by activity in the metals sector. Overall IP cross-border deals represented 33 percent of total deal activity during the first quarter of 2014, compared to 27 percent in the first quarter of 2013. 

North America also experienced healthy inbound deal activity, primarily from Asia-based acquirers. Asia and Oceania remained the most active regions for M&A activity in the first quarter, recording 83 deals worth more than $50 million with a total value of $25.1 billion. North America followed with 53 deals worth $50 million or more, totaling $23.6 billion.

"We're starting to see more advanced economy acquirers in Asia, particularly in Japan and South Korea, show interest in North American targets. This supports our view that the North American manufacturing environment continues to be attractive to in-bound as well as local investment. Our latest Manufacturing Barometer also showed positive sentiment toward the prospects of U.S. commerce in the next 12 months, reaching the highest level since the fourth quarter of 2005," said McCutcheon.

Strategic investors continued to drive the majority of deal activity across the IP industry during the first quarter, reflecting their focus on longer-term investment initiatives. Participation among financial acquirers was 27 percent in the first quarter of 2014, up slightly from 26 percent during last year's first quarter, but down sequentially from the 36 percent in the fourth quarter of 2013. The transportation & logistics industry led the way with financial investors representing 40.5 percent of first quarter M&A volume, followed by the engineering and construction and metals industries representing 31 percent.

"Following the post-recession bounce in deal-making, we are now seeing a more muted M&A environment, with an emphasis on transactions that can drive operating synergies and profitable growth. This measured approach to the M&A market is in line with the findings of our most recent Barometer survey, which showed that management teams remain prudent regarding longer-term investment outlays, principally due to persistent economic uncertainty overseas," concluded McCutcheon. "However, confidence in the U.S. economy has improved and companies are more willing to pursue strategic opportunities domestically, when there is a clear path to consolidation and the potential for profitable returns. Down the line, we may potentially see an evolution of how disruptive technology can impact the M&A market for the industrial products sector as strategic investors look to acquire assets for purposes of securing innovation, products and services."

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