Industrial manufacturing M&A activity on the rise despite weak global economy, says PricewaterhouseCoopers
9 November 2009 - Although the global economy continues to be relatively weak, the third quarter of 2009 did show signs that the deal environment may have taken a positive turn according to Assembling value: Third-quarter 2009 global industrial manufacturing mergers and acquisitions analysis. – especially in terms of deal value experiencing a 272 percent increase in Q3 2009 from the prior quarter. Deal activity in the third quarter showed a marked improvement, both in terms of deal volume and value, increasing from 10 deals with a disclosed value of $1.8 billion in the second quarter to 29 deals with a disclosed value of $6.7 billion in the third quarter. Year-to-date deal activity remained constrained relative to a year ago, possibly due to the lull in activity by financial investors and persistent – although improving – weakness in the capital markets.
Graeme Billings, Global Industrial Products leader, PricewaterhouseCoppers says:“Particularly when looking at the pattern for industrial manufacturing M&A activity coming out of the past three recessions, which indicates that the deal environment improves as the overall economy comes out of a downturn, Q3 does show signs that things may have turned a corner. Certainly the past is not always an accurate indicator of future performance, but trends coming out of past recessions, coupled with the sequential improvements in Q3, provide some comfort heading into 2010.”
While average deal value declined consistently throughout 2008 and during the first half of 2009, this trend saw a reversal in the third quarter of 2009 as the average deal value increased to $237 million, compared to $153 million in first half of 2009, driven primarily by the increase in total deal values in Q3 2009.
As the global economy continued to struggle with credit market disruption and weak demand, financial investor M&A activity in industrial manufacturing remained restrained in Q3 2009. For the year-to-date, large deal activity (defined as deals with a disclosed value of at least $1 billion) remains nonexistent, as no deals were announced during the period. There were four transactions with values above the $500 million threshold, all driven by strategic buyer interests. The absence of financial investors and the complications prevalent in syndicated lending no doubt affected the level of large transactions. Although the percentage of deals worth $50 million or more associated with financial investors increased slightly to 34 percent (compared with year-to-date at 33 percent), financial investors have not been a factor in driving the larger middle-market transactions announced for the year so far. While the percentage of deals driven by strategic investors declined slightly in Q3 (66 percent versus 67 percent year-to-date), strategic buyers have been the primary force supporting larger middle-market deal activity in 2009.
Targets located in the Asia & Oceania region remained the focus of deals through the first three quarters of 2009, with 44 percent (as measured by deal volume) of all targets located in this region, compared to only 28 percent in 2008. Acquirers from Asia & Oceania, North America and the UK & Eurozone regions drove deal activity in both volume and value through the first nine months of 2009, accounting for 88 percent of deal volume and 84 percent of deal value year-to-date.
Sorting Out the Carbon Effect on Deal Activity
The third quarter Assembling value report takes a deeper look at the impact prospective energy and climate change legislation may have on business transactions, the deal market’s response, company brand and reputation considerations, and the interests of the growing number of environmentally aware stakeholders.
As national policy action on greenhouse gas emissions begins to take shape, industrial manufacturing companies, in particular, must pay closer attention to the economic consequences of the proposed climate change legislation when planning and executing deal strategy. If implemented, a cap-and-trade system will require companies to measure and account for their greenhouse gas emissions and credits,which will necessitate manufacturing companies to learn how to inventory their carbon footprints, identify what needs to be disclosed, and be able to distinguish a risk from an opportunity.
Although pending climate change legislation needs to be considered in any deal, it is becoming one of the drivers behind valuations — especially in heavy-emitting sectors — in anticipation of demand for alternative energy and regulation to reduce emissions. In addition to assessing the effect climate change has on valuations, companies must consider reputation, branding and stakeholder interest.
For information on Assembling value and to access the full report, including the special section on the impact of prospective energy and climate policies, visit the industrial manufacturing industry website at www.pwc.com/us/industrialproducts.
ENDS
Contacts:
Elaine Bailey, media relations, PricewaterhouseCoopers
Tel: +44 (0)20 7212 5133, Email: elaine.bailey@uk.pwc.com
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