Global metals M&A deal value on pace to exceed 2008 levels by 85%, finds PwC

Asia & Oceania Region Dominates Deal Activity During the First Half of 2009

NEW YORK, August 13, 2009 — The number of deals announced in the global metals industry during the second quarter of 2009 declined from the first quarter and remained far below the pace of 2008. However, the value of deals through the first half of 2009 is on track to be 85 percent higher by the end of the year than the total deal value for all of 2008, according to a new PricewaterhouseCoopers LLP report, Forging ahead: Second-quarter 2009 global metals industry mergers and acquisitions analysis.

During the first half of 2009, there were 34 deals announced worth $50 million or more, compared with 139 deals for all of 2008. Based on current deal volume, 2009 is on pace to fall short of 2008 numbers by 50 percent. This contrasts with a relatively high level of deal value announced during the first half of 2009, almost equaling the deal value announced during all of 2008. However, the primary contributor to this level of value was the announcement of one large deal. The potential for incremental large deal activity during the balance of 2009 remains limited, though the debt market has become more accommodating for investment-grade and high-yield corporate issuers compared with the first half of 2008.

“We expect that new announcements will continue to be strategic in nature, including deals that enable the acquirer to vertically integrate or gain exposure to attractive mining assets,” said Robert W. McCutcheon, U.S. metals leader at PricewaterhouseCoopers. "These drivers should provide something of a bright spot in what has been an otherwise sluggish environment for metals deals.”

The Asia & Oceania region dominated activity during the first half of 2009, comprising 71 percent of total deal volume and 94 percent of value as M&A targets and 85 percent of total deal volume and 95 percent of value as acquirers. Cross-border deals are on the decline as local-market deals take precedence. In the first half of 2009, total local-market deals comprised 62 percent of deals (for deals worth $50 million or more), compared with 38 percent being cross-border deals.

Strategic investors continue to dominate the deal landscape for metals targets, accounting for almost 99 percent of deal value announced during the first half of 2009. This is an increase from 2008, when strategic investors accounted for 75 percent of deals. It is likely that strategic investors will continue to account for a large majority of announced deal value because of restraints on credit and the rationale for building scale and consolidation within the sector.

The Rise of China

As the deal activity continues to increase in the AsiaPac Region, the second quarter Forging ahead 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.

“China’s reported 7.9 percent growth for the second quarter of 2009 is creating hope that the world recession may be easing,” said Jim Forbes, global metals leader at PricewaterhouseCoopers. “In our experience, often the companies that are best positioned to succeed are those that understand China’s strategic development priorities and approach Chinese business relationships as partnerships, rather than the traditional investor-investee transactions.”

For U.S. companies struggling through the recession, China’s gross domestic product growth rate, which forecasters in China and the United States now expect to approach or even exceed eight percent for 2009, is enticing. So, too, are the hundreds of billions of dollars China has committed to bolster its domestic demand and pursue investment in a multilayered economic stimulus effort.

The influence of China’s government can have important consequences both for companies looking to do business with the Chinese and for companies whose business overlaps with Chinese priorities, such as resource- and technology-related sectors.

For information on Forging ahead and to access the full report, including the special section on China, visit: www.pwc.com/us/industrialproducts.

About PricewaterhouseCoopers' Global Metals practice

PricewaterhouseCoopers' Global Metals practice is composed of a worldwide network of industry professionals serving metals clients and strategically located in more than 30 countries. PricewaterhouseCoopers services global clients involved in ferrous and nonferrous primary and secondary metals production by bringing experience, leading international industry practices, and a wealth of specialized resources to help solve business issues.

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