First Quarter 2011 Global Metals M&A Value More Than Doubles Over Same Period Last Year

With stronger corporate balance sheets, improved availability of credit, and metal prices stabilizing, the recovery in global metals mergers and acquisitions (M&A) activity – which began in 2010 – is expected to continue for the balance of 2011, according to Forging ahead, a quarterly analysis of M&A activity in the global metals sector by PwC .

In the first quarter of 2011, there were 26 deals with value greater than $50 million, accounting for $12.9 billion in total deal value, a 105 percent increase from $6.3 billion in the first quarter of 2010, which had two fewer deals. First quarter 2011 average deal size was $500 million, a 67 percent jump from the $300 million average deal size in the first quarter of 2010. There were four mega deals, transactions with disclosed value of at least $1 billion, announced in the first quarter of 2011. According to PwC, mega deals will continue to be an important factor in M&A activity as 2011 progresses and will likely drive increased deal values in future quarters.

Deal valuation, as reflected by EBITDA, increased significantly in the first quarter of 2011. This improvement, according to PwC, was likely driven by companies with cash-heavy balance sheets seeking attractive investments that could bolster organic growth.

John Campbell, metals and mining leader, PwC Russia, commented:

“The metals industry continues to enjoy a promising period of M&A activity after two consecutive years of total deal value that exceeded $90 billion.

“Additionally, the trend in financial liquidity indicates that the sector is becoming better positioned to pay for new deals. A PwC survey we conducted of the top 50 publicly traded global metals competitors reveals that these companies have, on average, significantly higher cash balances than just two quarters ago. This cash, in combination with improved availability of credit and interest rates that are extremely low, positions companies favourably to take advantage of opportunities. We expect that these trends could lead to increased activity, at least in the near term.”

For deals worth $50 million or more, the Asia and Oceania and North American regions drove overall deal value in the first quarter, with deals that have at least one entity in these regions contributing $6.7 billion and $6.1 billion, respectively.

Europe was the primary driver for outbound deals with three that contributed $2.4 billion in deal value. Asia and Oceania counted three inbound deals worth a total of $4 billion.

Jim Forbes, global metals leader, PwC, said:

“Acquirers from the more advanced economies were responsible for an increased proportion of overall deal activity. Making acquisitions offers companies a number of opportunities for growth that might not be available from a strictly organic growth strategy, such as access to raw materials, entrance into new markets, and creation of larger economies of scale.

“We expect that Asia and Oceania will continue to drive local deal value throughout the rest of 2011 as smaller Chinese companies combine for increased efficiency in production. It’s also our belief that Asia and Oceania will see large inbound activity as companies in other regions seek a foothold in emerging markets and look to reduce operating costs.”

Financial investors are increasing their involvement in the sector with 16 percent of deals worth more than $50 million this quarter compared with 12 percent in 2010 and just 4 percent in 2009. Financial investors also contributed to the third and fourth largest deals in the first quarter of 2011. PwC expects financial investors to remain engaged in metals deals, but notes that their focus is likely to stay on downstream targets, with upstream assets remaining primarily the domain of strategic acquirers. The reasons for this, according to PwC, include the inherent volatility, political risks, and potentially longer holding periods required for upstream acquisitions.

Targets classified as iron ore were the primary driver of activity during the first quarter of 2011, contributing almost 40 percent of the quarter’s deals worth a total of $5.1 billion. This is a significant increase over full year 2010 when iron ore only represented 20 percent of total deals. Steel targets represented a total deal value of $4.4 billion, while aluminum deals were worth $2.3 billion in the first quarter of 2011.

Jim Forbes added:

“The focus on iron ore deals illustrates the need for companies to integrate reliable iron ore supplies into their organizational structures. Additionally, we’ve seen an uptick in these deals due to horizontal consolidation of some of the smaller players.”

"PwC Russia" refers to PwCIL member-firms operating in Russia.

PwC Press Office