Iron ore driving Canadian metals M&A activity, represents 48% of deals:
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
"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
"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
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.
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."
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,
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.
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.
For further information:
Jessica Draker, PwC
Tel: 613 755 8706
Kiran Chauhan, PwC
Tel: 416 947 8983