Metals M&A surges in Q1; Canada home to largest deal globally

Iron ore driving Canadian metals M&A activity, represents 48% of deals: PwC report

TORONTO, June 2, 2011 /CNW/ - The pace of Canadian metals sector deal activity rose significantly last quarter to levels last seen in the second quarter of 2007, according to a new PwC report. Globally, the value of metals deals more than doubled year-over-year and a heightened pace of mergers and acquisitions (M&A) activity is expected for the balance of 2011.

In Canada, 39 deals have been announced in 2011, including 5 transactions valued at US$50 million or more. Iron ore was the most targeted resource in Canada and globally last quarter, accounting for nearly half (48%) of all Canadian deals and almost 22% of all global transactions in Q1.

Canada was home to the most valuable deal last quarter with Cliffs Natural Resources acquiring Canada's Consolidated Thompson Iron Mines for US$4.1 billion. Other notable deals of the quarter were Wuhan Iron and Steel's (WISCO) acquisitions of a 27% stake in Adriana Resources and a 25% stake in Century Iron Ore Holdings in effort to secure a long-term supply of iron ore.

So far, Canadian deal activity in Q2 2011 has built on the strength seen last quarter with Barrick Gold announcing the acquisition of Equinox Minerals for US$7.6 billion. Additionally, there were four more transactions valued at US$100 million or more. All of the above transactions are domestic deals between two Canadian-headquartered companies.

"A trend more prevalent this year is Canadian-headquartered companies buying other Canadian domiciled companies, with more than half being local transactions last quarter," says Jim Forbes, National and Global Metals Leader, PwC. "This volume of domestic deals seems to run counter to some perspectives in the market that Canada's commodity and resource sectors are hollowing out."

Out of the 228 global transactions last quarter, 26 were valued at US$50 million or more. This is on par with Q1 2010 when there were 24 announced transactions with values more than US$50 million. However, the US$12.9 billion value of these deals far outstrips the US$6.3 million seen the same period last year—a 105% rise in deal volume year-over-year. The first quarter also saw a resurgence of "mega deals" (transactions worth more than US$1 billion) as there were four mega deals in Q1 globally, an increase from two during the same period in 2010.

"The outlook appears mixed for deal activity in the Canadian metals sector, with the effects of the strong Canadian dollar potentially being offset by the need to moderate inflation in both developed and emerging markets," says Forbes. "Overall, greater confidence in the market coupled with significant growth in developing and emerging markets should further stimulate activity in the coming months."

PwC expects three key themes for the Canadian metals sector for the rest of 2011:

1)     Conservatism in bidding wars: Even with the Canadian dollar trading above parity, as metals and resource prices continue to trade at lofty levels, we expect to see potential acquirers tread cautiously when investigating potential transactions, particularly when deals are already viewed as fairly priced.  This behaviour was witnessed early in the second quarter as Minmetals refrained from engaging in a bidding war with Barrick Gold for Equinox Minerals.
2)      Inflation potentially impacting emerging markets: The effects of interest rate increases in India and reserve increases in China may dampen expectations of continued demand for commodities.  Forbes adds, "As these emerging economies are the engines behind the growing demand for commodities, the prospect of continued tightening could have adverse consequences for the Canadian metals sector for the duration of 2011."
3)      Continued integration throughout the supply chain: According to Forbes, "We continue to see companies integrate their need for reliable supplies of critical resources into their organizational structures. Examples of this have been prevalent in iron ore as we've seen an uptick in these deals due to horizontal consolidation of some of the smaller players."

For a copy of Forging Ahead, PwC's quarterly analysis of M&A activity in the global metals sector, visit: http://www.pwc.com/us/en/industrial-products/publications/forging-ahead.jhtml

About PwC's Deal Team
PwC's Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world's largest Transaction Advisory practice, and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year , the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

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PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,800 partners and staff in offices across the country.

"PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Note to Editors: PwC has changed its name from PricewaterhouseCoopers to PwC in the fall of 2010. 'PwC' is written in text with a capital 'P' and capital 'C'. Only when you use the PwC logo is the name represented in lower case.

 

SOURCE PwC

For further information:

Jessica Draker, PwC
Tel: 613 755 8706
email: jessica.l.draker@ca.pwc.com

OR:

Kiran Chauhan, PwC
Tel: 416 947 8983
email: kiran.chauhan@ca.pwc.com

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