M&A activity in the global metals sector brought in 15 deals for a total value of $3.9 billion in Q2 2017. Recovering commodity prices and lower production costs were expected to drive M&A growth this year; however, industry players are focused on improving shareholder returns by optimizing existing assets and completing strategic acquisitions that require low capital investment.
Local deals in the Asia & Oceania region continue to drive deal volume, demonstrating the region’s growing interest in infrastructure. Nevertheless, transaction value has steadily declined in the region during the past year as metal prices have responded to decelerated output from China's manufacturing sector and the future demand for infrastructure and construction remains uncertain. Metal prices have also been affected by China’s limited credit growth, which has created a rise in borrowing costs. As a result, companies are restraining their capital expenditure and cautiously investing on smaller projects and assets.
Moreover, industry players are evading costly projects that could become unprofitable if metals were to enter a bear market. We expect M&A activity to improve once commodities reach higher prices.
"Q2 2017 saw a continued reduction in terms of deal volume and value in the metals industry compared with Q1 2017 and Q4 2016. This trend can be expected to sustain in the near term as commodity price recoveries have alleviated balance sheet pressure to sell assets, and companies are more likely looking to achieve full value from divestitures."