LONDON Merger and acquisition activity in the metals
sector reached a total value of $10.7 billion in the fourth
quarter of 2012a solid increase after three quarters of
decline but a decline from year-ago periodwhile the
number of deals valued at $50 million or more increased
markedly, according to a report by PricewaterhouseCoopers LLP
A total of 26 deals were reported in the fourth quarter of
2012. Thats up from 21 in the third but down from 35 in
the fourth quarter of 2011.
Total deal value came to just $4.1 billion in the third
quarter, but reached $23.1 billion in the fourth quarter of
The average deal value more than doubled quarter over quarter
to about $409 million, but that was still far below the average
value of $700 million recorded the fourth quarter of 2011.
Mega-dealsor those worth $1 billion or more
accounted for more than half of the total fourth-quarter
deal value, the report showed.
The largest mega-deal, valued at $2.9 billion, involved the
merger of Portland, Ore.-based Precision Castparts Corp. and
Dallas-based Titanium Metals Corp. (amm.com, Nov. 9). That is
expected to be completed in the first quarter.
Improvement in the global economy, investor confidence
and increased demand from end-use markets all contributed to
the (quarter-on-quarter) uptick in activity, New
York-based PwC said.
And as the global economy improves, liquidity is still strong
for many metals producers, according to PwC.
Weve seen an increase in cash balances over the
past two years, although there was a slight decline over 2011,
and debt-to-capital levels continue to decline, it said.
The liquidity scenario appears to be paying off finally,
as (buyers) move forward in making acquisitions.
Despite the strong finish to 2012, however, metals M&A
activity during the year was the lowest since 2009.
Possible reasons for this include slowing growth in several
emerging economies such as China and India, as well as
sovereign debt woes in the eurozone and weaker growth in the
Additionally, weak commodity prices and overcapacity
issues negatively affect the deal environment, PwC said.
Local market deals led the way, as 76.9 percent of deals during
the quarter involved buyers and the targets based in the same
In China, six of the eight deals announced in the fourth
quarter were local, the report said, noting that consolidation
of smaller companies into larger state-owned entities may be a
way to achieve economies of scale.
Mergers and acquisitions in copper, nickel and non-precious
metals dominated in the quarter, PwC said. One such example was
London-based Millhouse Capital UK Ltd.s $1.47-billion
purchase of a 4.9-percent stake in Moscow-based MMC Norilsk
Given the current environment, we are cautiously
optimistic that the resurgence seen this quarter will
continue, the report said. However, until pricing
and capacity turn around, we dont anticipate the high
volumes of deals seen pre-recession, at least in the near
A review of the top 50 publically traded metals companies
showed that cash balances stayed more or less flat, while
debt-to-equity ratios have fallen. This indicates that
potential buyers of metals targets have continued to improve
their financial positions over the long term.
Deals identified as divestitures increased substantially
this quarter, growing by more than 36 percent. The majority of
them fell into the small to medium category of deals, the
report said. Given this boost in divestitures, it makes
sense that as the economy improves, companies are better able
to find buyers as they eliminate non-core and underperforming
Deals with financial investors rose as a percentage of all
fourth-quarter deals to 49.3 percent, compared with an average
of 29 percent for 2012 overall and 27 percent for 2011.
This comes at the same time that deals overall increased,
indicating that financial investors may again have a
willingness to enter into deals, PwC said.
However, the proportion of buyers from advanced economies fell
to 50 percent of, down from 55 percent in the corresponding
period in 2011. Companies may be wary about expanding capacity
because of lackluster demand, PwC said.