Global deal activity for industrial products on the rise in Q1 2010: PwC

M&A environment in engineering and construction, transportation and logistics, metals, and aerospace and defence industries shows signs of recovery

May 31, 2010 — Overall deal activity in the industrial products sector continued to rise in the first quarter of 2010, according to reviews by PricewaterhouseCoopers (PwC) of merger and acquisitions (M&A) in several industries, including: engineering and construction, transportation and logistics, aerospace and defence, and metals. The outlook remains positive for the remainder of the year as the environment stabilizes and becomes favourable to increased deal activity.

Engineering and construction

With 29 transactions in Q1 2010 in the global engineering and construction (E&C) sector, the year is off to a fast start, according to Engineering growth: an analysis of first-quarter 2010 global engineering and construction industry mergers and acquisitions.

• Deal value in the sector totaled US$21.2 billion in the first quarter 2010, compared with US$3.8 billion and US$23.7 billion in the first and fourth quarters of 2009, respectively.
• There was a strong rebound in mega-deals (transactions of at least US$1 billion) during Q1 2010, with four transactions announced – quite the opposite from the zero mega deals announced in the first quarter of last year.
• Of the 29 transactions announced during the period, nine (31%) involved a US entity and of the US$21.2 billion in deal value announced during the period, 61% was attributable to YS affiliated activity.

“Only 15 deals totaling just $2.6 billion were announced in all of 2009, suggesting that many of the factors that adversely affected deal activity last year such as the lack of credit availability and weak global demand have moderated, which bodes well for deal activity in 2010,” says Sal Bianco, partner and national leader of the Engineering and Construction practice at PwC.

Metals

The volume and value of M&A deal activity in the global metals industry improved moderately from the lows of 2009, according to Forging Ahead, an analysis of first-quarter 2010 global metals industry mergers and acquisitions.

• The 21 deals announced in Q1 rank above the three-year quarterly low of 17 deals announced in Q1 and Q2 of 2009, although lower than the 34 deals announced in Q4 2009.
• The US$5.9 billion deal value announced in Q1 2010 remains above the three-year quarterly low of US$4.6 billion announced in Q3 2009.
• Deal makers from emerging and developing economies appear to have increasingly become more aggressive as acquirers of metals targets. These deals have been driven by greater involvement from Chinese acquirers, in 2009, 28% of acquirers were Chinese entities, in Q1 2010 this proportion grew to a majority, 57% of acquirers.

“While deal totals have not yet fully recovered from the downturn, the environment is becoming more conducive to deal activity in the metals sector,” says Jim Forbes, partner and global leader of the Metals practice for PwC. “Globally, the relative sense of urgency to engage in new deals is likely greatest for steel companies, which face a consolidated base of iron ore suppliers. Those could lead to additional mergers among steel constituents or backward integration.”

Transportation and logistics

The M&A environment continues to exhibit signs of recovery in the global transportation and logistics (T&L) sector, demonstrated by the general rise in overall deal activity in Q1 2010 PwC reports in  Intersections: First-quarter 2010 global transportation and logistics industry mergers and acquisitions analysis. 

• There were 34 deals announced in the first quarter, which exceeds the total number of deals announced in each of the four quarters last year.
• Deal value in Q1 2010 was at US$13.4 billion, up US$7.5 billion from Q1 2009. Additionally, this quarter’s aggregate deal value is on pace to approach the value level of 2009; however, when excluding a major rail transaction from 2009 totals, 2010 deal value is actually on pace to far exceed last year’s level. This improvement may indicate that acquirers are gaining confidence to engage in larger deals.
• Asian and Oceania (Australia, New Zealand and proximate islands) targets accounted for approximately half of all announcements in 2009 as well as in the first quarter of this year, compared to approximately 35% in 2008. A single passenger air mega-deal in Q1 2010 led Asia and Oceania acquirers and targets to account for the majority of deal value, comprising 78% of deal value by target region.

Aerospace and defence

The global aerospace and defence (A&D) sector experienced its strongest performance in the past five quarters with regards to total deal value PwC reports in Mission Control: an analysis of first-quarter 2010 global aerospace and defence industry mergers and acquisitions.

• The total number of deals increased to 68 deals in Q1 2010 from 63 in Q1 2009. 
• There were two deals greater than US$1 billion in the first quarter of 2010, with a total quarterly deal value of US$5 billion up from US$3.2 billion in Q3 2009 and US$2.5 billion in Q4 2009.
• On a year-over-year quarterly basis, total transaction value increased by 345% from US$906 million to US$5 billion for all deals with a reported value over US$50 million.
• The average deal value of transactions greater than US$50 million also rose to US$630 million during the first quarter of 2010, representing a 52% increase compared to the previous quarter.

“We believe there are many catalysts in place that support continued strength in the A&D mergers and acquisitions market, including an improving commercial aviation picture and reduced levels of defence spending, which will spur some consolidation in the sector,” said Mario Longpré, partner and national leader of the Aerospace and Defence practice, PwC Canada.  “This sector is trending towards more large and mid-size deals as many A&D companies came out of the recession with strong balance sheets.”