Global industrial manufacturing M&A declines 71% in first half of 2009, finds PwC

Deal activity by Asia and Oceania buyers increases significantly

NEW YORK, August 13, 2009 –Mergers and acquisitions in the global industrial manufacturing industry showed little improvement during second quarter 2009, according to the PricewaterhouseCoopers LLP report, Assembling value: Second-quarter 2009 global industrial manufacturing mergers and acquisitions analysis.

The pace of deal volume (measured by the number of deals with a disclosed value of at least $50 million) slowed substantially on a year-over-year basis, with total deals declining 71 percent to 26 in first-half 2009 from 90 during first-half 2008. On a quarterly basis, only 12 deals were announced in second quarter 2009, down slightly from the 14 announced in the prior quarter and a steep drop from the 47 deals announced in the second quarter of last year.

Total deal value in first-half 2009 was approximately $4 billion, an 85 percent decline from the $27 billion reported in first-half 2008. In addition, average deal value declined to $153 million during the first half of 2009 from $297 million in first-half 2008, representing a 48 percent year-over-year decline.

“Constrained corporate profits, high unemployment, and pessimistic economic forecasts continue to curb investor appetite for acquisitions,” said Paul McCarthy, U.S. industrial manufacturing transaction services strategy leader at PricewaterhouseCoopers. “As weak global economic fundamentals continue to depress deal volume and value, we continue to believe distressed transactions will drive deal activity.”

Financial investors remain on the sidelines as stronger strategic buyers take advantage of opportunities to expand and weaker firms employ exit strategies. Although the percentage of deals driven by strategic activity in the first half of 2009 (69 percent) declined relative to the first half of 2008 (73 percent), results compare favorably with the three-year average (2006-2008) of approximately 68 percent.

Large deal activity (defined as deals with a disclosed value of at least $1 billion) has continued to be dramatically lower than historical levels. In first-half 2009, there were no large deals. Only 26 deals had a disclosed value greater than $50 million versus 86 in first-half 2008. This lull in large deal activity is expected, given continued global economic weakness. Industrial manufacturing will not likely see a return of large deals until investor confidence returns and a global economic and credit recovery is realized.

During the first half of 2009, North American and Asia & Oceania buyers were responsible for 69 percent of M&A activity (as measured by deal volume), a significant increase when compared with 55 percent in the first half of 2008. The increase can be directly attributed to a rise in activity from buyers in Asia & Oceania, which accounted for 42 percent of deal volume, versus a three-year historical average (2006-2008) of approximately 23 percent. At the same time, the percentage of buyers from the UK & Eurozone region declined significantly to 15 percent from 26 percent in first-half of 2008.

In addition to buyers, targets located in the Asia & Oceania region also garnered the most interest, accounting for 46 percent of total deals during the first half of 2009, compared to 28 percent in all of 2008. North American targets accounted for 27 percent of deals during the first half of 2009, which was significantly lower than 2006 (39 percent) and 2007 (37 percent) levels but remained relatively in line with 2008 (29 percent) levels. Much of the change in the percentage of deals for North American targets is attributable to increased interest in the UK & Eurozone and the Asia & Oceania regions.

“Deal activity in North America continued to be sparse compared to historical levels,” said Barry Misthal, U.S. industrial manufacturing leader, PricewaterhouseCoopers. “However, the substantial increase in deal activity in Asia & Oceania suggests that companies in that region are taking full advantage of the declining asset values. Given the opportunity this region presents, it will likely continue to be a driver for global M&A activity.”

The Rise of China

As the deal activity continues to increase in the AsiaPac Region, the second quarter Assembling value report takes a deeper look at China specifically, including the country’s continued impact on the global economy, as well as the challenges and opportunities that exist for companies looking to initiate or expand existing business with China.

The $586 billion Chinese infrastructure stimulus plan implemented in late 2008 bodes well for several industrial products subsectors, including engineering and construction, transportation and logistics, and metals. However, the implications may not be as significant for industrial manufacturing, given the spending primarily is intended to finance infrastructure development. Furthermore, deal activity in China has continued to dominate BRIC (Brazil, Russia, India, China) transactions. During first-half 2009, China’s four announced deals represented 67 percent of deal volume for BRIC-affiliated transactions.

For information on Assembling value and to access the full report, including the special section on China, visit our industrial manufacturing industry website at www.pwc.com/us/industrialproducts.

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