TORONTO, June 2, 2011 — The pace of Canadian metals sector deal activity rose significantly last quarter to levels last seen in the second quarter of 2007, according to a new PwC report. Globally, the value of metals deals more than doubled year-over-year and a heightened pace of mergers and acquisitions (M&A) activity is expected for the balance of 2011.
In Canada, 39 deals have been announced in 2011, including five transactions valued at US$50 million or more. Iron ore was the most targeted resource in Canada and globally last quarter, accounting for nearly half (48%) of all Canadian deals and almost 22% of all global transactions in Q1.
Canada was home to the most valuable deal last quarter with Cliffs Natural Resources acquiring Canada’s Consolidated Thompson Iron Mines for US$4.1 billion. Other notable deals of the quarter were Wuhan Iron and Steel’s (WISCO) acquisitions of a 27% stake in Adriana Resources and a 25% stake in Century Iron Ore Holdings in effort to secure a long-term supply of iron ore.
So far, Canadian deal activity in Q2 2011 has built on the strength seen last quarter with Barrick Gold announcing the acquisition of Equinox Minerals for US$7.6 billion. Additionally, there were four more transactions valued at US$100 million or more. All of the above transactions are domestic deals between two Canadian-headquartered companies.
“A trend more prevalent this year is Canadian-headquartered companies buying other Canadian domiciled companies, with more than half being local transactions last quarter,” says Jim Forbes, National and Global Metals leader, PwC. “This volume of domestic deals seems to run counter to some perspectives in the market that Canada’s commodity and resource sectors are hollowing out.”
Out of the 228 global transactions last quarter, 26 were valued at US$50 million or more. This is on par with Q1 2010 when there were 24 announced transactions with values more than US$50 million. However, the US$12.9 billion value of these deals far outstrips the US$6.3 million seen the same period last year—a 105% rise in deal volume year-over-year. The first quarter also saw a resurgence of “mega deals” (transactions worth more than US$1 billion) as there were four mega deals in Q1 globally, an increase from two during the same period in 2010.
“The outlook appears mixed for deal activity in the Canadian metals sector, with the effects of the strong Canadian dollar potentially being offset by the need to moderate inflation in both developed and emerging markets,” says Forbes. “Overall, greater confidence in the market coupled with significant growth in developing and emerging markets should further stimulate activity in the coming months.”
PwC expects three key themes for the Canadian metals sector for the rest of 2011:
For a copy of Forging Ahead, PwC’s quarterly analysis of M&A activity in the global metals sector, visit: http://www.pwc.com/us/en/industrial-products/publications/forging-ahead.jhtml
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