TORONTO, March 16 /CNW/ - The steep fall in global metals deal value continued in 2009 with total value below levels last seen in 2003, according to the PricewaterhouseCoopers LLP (PwC) 'Forging Ahead' report, an annual review of M&A activity in the metals sector. A distinguishing characteristic of this recession, however, has been the lack of major bankruptcies. Companies instead moved swiftly to conserve cash and protect margins.
- The number of M&A deals in 2009 remained high but for much smaller
sizes with average deal value at just US$56.2 million compared to US
$274.2 million in 2008.
- Total deal value at US$15.1 billion, was down 75% year on year and
was barely a tenth of the record high reached in 2007.
- Nearly three quarters (71%) of the deal value occurred in domestic
deals rather than cross-border deals, unlike in the previous two
years when the pattern was almost the opposite with around two thirds
of deal value conducted cross-border.
"Constrained financing and high levels of existing debt led to a large degree of M&A caution. Credit remained available but the banking crisis restricted the range and raised the cost of financing," says Jim Forbes, national and global metals leader, PwC. "Moves to reach down the supply chain to secure raw materials resources, and thereby ease reliance on the annual pricing cycle, continue to be an important feature of the metals deals landscape, particularly among Chinese companies. But deals of this kind were not as common as in previous years."
Metals deal values plummeted around the world but it was in North America and Europe where they dwindled to negligible levels. The North American metals deals total was just US$1.6 billion in 2009, down from US$76.7 billion in 2007 and US$17.2 billion in 2008. Europe and the Russian Federation followed a similar pattern with a total deal value of just US$1 billion.
Instead, it was deals in Asia Pacific and South America, led by China and Brazil, which delivered the majority of 2009 metals deal value and the two regions together accounted for 83% of the worldwide total.
Although deal values were down, more deals completed in 2009 than any other year in our reporting series. Part of this was balance sheet housekeeping spurred by the steep recession and fall-off in metals prices. Restructuring in the Russian metals sector was also a factor in the high number of deals with 57 Russian deals among the 521 deals listed, all but one of them with no disclosed value.
The geographical centre of gravity for metals deals continues to shift towards Asia Pacific. The Asia Pacific share of worldwide deal value had already multiplied more than five-fold between 2007 and 2008. In 2009 it nearly doubled again with Asia Pacific accounting for 50% of total value.
Total deal value fell substantially in all regions with the highest falls recorded in North America and western Europe where values dwindled to less than 10% of the level seen just a year earlier and to a startling 2% and 3% respectively of the total deal value reached in 2007. Deal numbers increased in all regions with the exception of North America.
"Despite some consolidation in recent years, the steel and iron ore sectors, in particular, remain relatively fragmented. This is the case both regionally and globally. With liquidity returning to the market place and the capital markets more accessible for equity deals, the logic of consolidation may prompt some significant deals. Whether there is such a deal flow will depend on companies' assessment of the strength of any recovery," concludes Forbes.
For more information, please visit www.pwc.com/metals.
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