Q4 2009 deal activity in metals sector shows improvement although deal value
remains weak, according to PwC

32 deals announced in the fourth quarter of 2009, 11 more than the third quarter

TORONTO, March 16 /CNW/ - The pace of deal activity in the global metals sector showed improvement during the fourth quarter of 2009 with 32 announced deals, an increase of 11 deals from the third quarter, according to the PricewaterhouseCoopers LLP (PwC) report, Forging ahead: Fourth-quarter 2009 global metals industry mergers and acquisitions analysis.

On an annualized basis, the number of deals announced during the fourth quarter exceeded the number announced during all of 2009 and falls only slightly short of the total announced in 2008. However, announced deal value remains mostly anemic. Although the US$4.9 billion of total deal value announced during the fourth quarter increased from the US$3.7 billion in deal value in Q3, it is still lower than any other quarter in the past three years.

"Conditions are in place for a brighter deal market in 2010. Metals deal activity has tended to increase coincident with economic recoveries and improvements in syndicated lending and corporate bond issuances indicate improving credit conditions," said Jim Forbes, PwC's global metals leader. "Risk premiums have narrowed and equity markets are recovering, providing better currency for future deals. Based on the probability of a sustained, albeit modest, economic recovery in key regions, higher commodity prices, and the capital market improvements, we are cautiously optimistic about the environment for metals deals in 2010."

Based upon the trends in average deal values and range of deal values along with the rebound in the total number of announcements, it is clear that the metals deal market is recovering but that the focus of this activity remains on smaller deals. Large deal activity slowed during 2009, with five such deals announced during the year compared with 19 in 2008. In addition, none of the large deals in 2009 were announced during the most recent quarter.

"The outlook for large deal activity in 2010 is better. Higher commodity prices and stock valuations can provide better currency for large deals," said Forbes. "In addition, a modest improvement in economic activity within developed markets, along with continued growth in developing markets, should help encourage potential acquirers to focus less on cost and liquidity improvements and more on growth opportunities available from large M&A transactions."

In the fourth quarter of 2009, the majority of the 32 announced deals with values of at least US$50 million were for targets in Asia & Oceania (comprising Australia, New Zealand, and other islands in the Pacific Ocean). When measured by value, targets in Asia accounted for approximately 63% of the deal activity in the fourth quarter. The resurgence in deal interest from U.S. companies also contributed substantial deal activity. The relative level of cross-border to local-market deals indicates that acquirers demonstrated a greater preference for targets within their home nations during 2009. Asia & Oceania entities are likely to continue to account for a large amount of metals deal activity in 2010 because of interest in outbound resource deals by China, as well as the importance of Australia as a consolidator in the sector.

For information and to access the full report, including a special section on innovation and its potential for stimulating recovery in the metals industry, visit: www.pwc.com/metals.

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