PwC US Says Overcapacity Continues to Impact M&A Activity in Steel Sector
08/02/2013 - While merger and acquisition (M&A) activity in the global metals sector has seen continued declines in both deal value and volume during the second quarter of 2013, China and other emerging markets played a significant role in the overall deal environment, according to PwC US.
“Overcapacity continues to have a significant impact on deal activity," said Sean Hoover, U.S. metals leader at PwC. “Consolidation in China and other emerging economies will hopefully help bring supply back in line with demand. In other regions like the U.S., companies have focused their attention inward to improve on operational efficiency and enhance their supply chains and product development efforts, while continuing to remain alert for opportunistic transactions.”
M&A activity during the second quarter of 2013 was the lowest seen since the end of the recession in 2009, according to PwC. Overall, there were 17 deals worth US$50 million or more accounting for US$6.8 billion in total value, compared to 20 total transactions representing US$7.9 billion in the second quarter of 2012. Average deal value increased slightly to US$402 million during the second quarter of 2013, compared to the US$394 million average deal value during the same period in 2012. Additionally, there was one mega deal (transactions valued at US$1 billion or more) with a value of US$2.2 billion, which accounted for nearly one-third of the total deal value during the second quarter of 2013.
In addition to the sole mega deal, which involved an acquirer from Kazakhstan, other emerging economies remained on the forefront in deal-making in the second quarter of 2013, including China, which accounted for seven local market deals totaling US$2 billion. Russia was also active during the second quarter, with two deals totaling US$369 million. In contrast, advanced economies were less active, with Japan responsible for three deals, the U.S. accounting for two deals and the U.K. involved in two deals.
Deal activity for metals in the steel and aluminum categories saw declines during the second quarter of 2013, while iron ore and the “other” categories, which includes copper, nickel and other non-precious metals, continued to fuel transactions. Of the four metals categories (steel, aluminum, iron ore and other), the “other” category made up 41 percent of the total deal value, and iron ore comprised 28 percent, while steel only accounted for 7 percent and aluminum made up 24 percent of the total deal value, during the second quarter of 2013.
Despite the slowdown in the overall M&A environment, financial investor activity was once again strong on a proportional basis by value during the second quarter of 2013, compared to all of 2012. In the second quarter, financial investors made up 43 percent of the total deal value, which was driven largely by the sole mega deal that was announced during the quarter. This compares to the 29 percent of the total deal value for all of 2012.
“Given the current uncertainty in the metals sector, many companies are reluctant to invest capital in additional capacity, particularly if the assets represent older technology. Instead, companies are focusing on the efficiency and effectiveness of their current operations so they are best positioned to take advantage of a rebound in the sector when it occurs.” added Hoover.
For more information on PwC’s Deals practice, visit www.pwc.com/us/deals.
PwC's Global Metals practice is composed of a worldwide network of industry professionals serving metals clients and strategically located in more than 30 countries. PwC services global clients involved in ferrous and nonferrous primary and secondary metals production by bringing experience, leading international industry practices, and a wealth of specialized resources to help solve business issues.
PwC’s Industrial Products (IP) practice provides financial, operational, and strategic services to global organizations across the aerospace & defense (A&D), business services, chemicals, engineering & construction (E&C), forest, paper, & packaging (FPP), industrial manufacturing, metals, and transportation & logistics (T&L) industries. For more information please visit: www.pwc.com/us/en/industrial-products
