Global Metals Markets See Robust Mergers and Acquisitions Action

Feb. 19, 2008
Non-U.S. firms and strategic investors lead the way in the fourth quarter of 2007.

Mergers and acquisition deals in the global metals market continued at an active pace according to a PricewaterhouseCoopers' report, "Forging Ahead: Global Mergers and Acquisitions Analysis." Overall, 37 deals (disclosed value at or above $50 million) in the metals industry were announced in the fourth quarter of 2007, compared to 35 deal announcements in the fourth quarter of 2006. The majority of deals (30) announced in Q4 are still pending while seven have already been completed.

While the number of deals remained steady, total deal value declined in the fourth quarter to $21.3 billion, down from $44.5 billion in Q4 2006. For the full year 2007, total deal value reached $163 billion, lower than the twenty-year high of $210 billion set in 2006, but still significantly higher than the $80 billion recorded in 2005.

"It appears that higher metals prices and strong global demand more than offset the recent decline in debt market liquidity,"said Douglas Dean, U.S. metals leader, PricewaterhouseCoopers. "We expect that total deal volume and values for metals companies will rise in 2008, with the fourth quarter serving as an indicator of what's to come."

Consistent with previous quarters, the majority of deal announcements in the fourth quarter took place in the steel sector, contributing $12.9 billion, which represents 61% of total deal value. Aluminum and iron targets also contributed significantly toward total deal value in Q4 2007, making up $5.5 billion combined.

A robust metals market paved the path for fourth quarter 2007 mega-deals, defined as deals worth over $1 billion in value. Overall, six mega-deals were announced in the most recent quarter, identical to the amount announced in Q4 2006. Of the 132 total deals announced during the last quarter of 2007, 14 deals are worth more than $500 million, totaling $17.4 billion in transaction values.

Strategic investors have stepped up as the primary driver of deal activity, accounting for approximately 85% of deal value in the last quarter of 2007, an increase from 2006 when they represented 60% of acquirers in the metals sector. The report found a decrease in the amount of financial investors, presumably due to lower buying power caused by a tight credit market in the U.S.

Non-U.S. entities acted as the majority acquirer for three-quarters of the deals targeting U.S. firms during the fourth quarter of 2007, an increase from last year, when they acquired half of the U.S. targets. In the previous quarter, there were only two deals in which a U.S. firm acquired another domestic firm.

"Recent cross-border deals demonstrate that metal companies in emerging markets are capable of making significant global deals," explained Jim Forbes, global metals leader, PricewaterhouseCoopers. "With strong currencies, highly-valued financing sources and additional cash from increased commodity prices, firms in the emerging economies will continue to play a significant role as cross-border acquirers in the global M&A market."

Asia Pacific firms were the leading targets for deals, on the basis of both value and volume of total deals, with nearly half (48.6%) of acquisition targets located in this region. However, interest in North American targets remained strong as 24.3% of deals worth $50 million or more were located in North America in Q4 2007. Deals in South America, Western Europe, Eastern Europe and Africa constituted 27% of deal volume combined.

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