Small and middle market local deals continue to lead activity
Strategic investors focus on longer-term investment initiatives & boosting organic growth
NEW YORK, November 7, 2013 – Merger and acquisition (M&A) value in the global industrial products (IP) industry increased during the third quarter of 2013 driven specifically by the industrial manufacturing sector, according to PwC US’ analysis of deal activity in the third quarter of 2013 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.
“We saw companies continue to pursue smaller, local market transactions and focus on internal investment in an effort to boost organic growth in the third quarter. While concerns around the outlook for the global economy, particularly the Eurozone, and mixed signals regarding U.S. fiscal policy remain, balance sheets are strong and companies are continuing to carefully evaluate M&A strategies, potentially boding well for future deal activity,” said Robert McCutcheon, PwC’s U.S. industrial products leader.
Comparing all transactions with a value exceeding $50 million in the third quarter to the second quarter of 2013, deal volume was flat and value increased across the IP industry, recording 169 transactions totaling $65.7 billion in the third quarter, compared to 171 deals with $53.3 billion in total value in the previous quarter. Four of the six IP sectors posted moderate sequential increases in M&A volume in the third quarter compared with the second quarter of 2013, led by the chemicals industry, which recorded 23 transactions compared to 18 in the second quarter. In terms of total deal value, the industrial manufacturing sector was the leader, posting $29.4 million in total deal value in the third quarter, up from total deal value of $12.7 in the second quarter.
The volume of mega deals (value exceeding $1 billion) remained at low levels during the third quarter as much of the activity revolved around small and middle market transactions. Highlighting the trend, four of the six IP sectors recorded only one mega deal apiece in the third quarter. The industrial manufacturing sector stood out from the pack, recording six mega deals during the third quarter, compared to three in the second quarter of 2013, but down from eight mega deals in last year’s third quarter.
“Strategic investors continued to drive the majority of deal activity across the industry during the third quarter, reflecting their focus on longer-term investment initiatives. We saw much of this activity in the chemicals sector where several companies engaged in strategic reviews of their assets to better align their business strategies with growth opportunities ahead,” continued McCutcheon. “In the third quarter, we witnessed a decline of involvement from financial investors across every sector. The exceptions were the A&D and industrial manufacturing sectors where PE firms are looking for opportunities to exit their investments made just before the economic downturn to retrieve some of their capital.”
Local market deals continued to drive the majority of IP M&A activity in the third quarter, in line with the past several quarters, recording 107 local deals worth more than $50 million. Leading the trend, local deals represented 75 percent of A&D transactions, and 72 percent of deal activity in the transportation & logistics industry during the third quarter. Consequently, cross-border deal activity remained low, representing 37 percent of total deal volume in the third quarter, up from 32 percent in the second quarter.
The Asia and Oceania region led in deal volume and was involved in 81 transactions worth $50 million or more, representing 48 percent of total third quarter global IP deal activity, compared to 87 percent of total deal activity recorded in the second quarter of 2013 and also during last year’s third quarter. There were 56 deals valued at more than $50 million that involved North America across the IP industry during the third quarter, down on a sequential basis from 100 in the second quarter and 125 in the third quarter of 2012.
Strength in North American M&A activity year-to-date has been notably visible in the industrial manufacturing (41), engineering & construction (31), and transportation & logistics (28) sectors. In addition, despite overall deal volume approaching 10-year lows, the chemicals sector has attracted 24 North American deals (including 22 emanating in the U.S.) valued at more than $5.2 billion through the first nine months of the year.
“Despite the overall cyclical downturn in M&A activity, several longer-term drivers are in place. Global infrastructure investment, particularly in developing markets, represents a primary catalyst of IP sector M&A going forward. With governments actively looking to rebuild and stimulate local economies, industrial products companies are jockeying to play key roles,” continued McCutcheon. “Our latest Manufacturing Barometer highlights that the executives are relatively optimistic about the U.S. economy, and this is apparent in some of the key trends we are seeing domestically such as the positive impacts from increased shale oil and gas production.”
PwC’s IP M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters.
For more information on PwC’s Deals practice, visit www.pwc.com/us/deals.
About PwC’s Industrial Products practice
PwC’s Industrial Products (IP) practice provides financial, operational, and strategic services to global organizations across the aerospace & defense (A&D), business services, chemicals, engineering & construction (E&C), forest, paper, & packaging (FPP), industrial manufacturing, metals, and transportation & logistics (T&L) industries. With more than 31,000 professionals located in over 150 countries, PwC’s IP global professionals deliver a wide range of industry-focused tax, assurance, and advisory services to address critical business issues. For more information please visit: www.pwc.com/us/en/industrial-products
About PwC US
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