Metals Industry Nearly Doubles M&A Value in 2018 Despite Decrease in Number of Deals

24 January, 2019

Mike Tomera
US TAS Market Leader, Midwest Market, PwC US
Brian Kelly
Metals Deals Leader, PwC US

2018 was a rollercoaster year for M&A activity in the metals industry. We saw the return of megadeals, which were absent in 2017, play a major role in the spikes and dips of deal value on a quarterly basis. Overall, their return helped nearly double total deal value from 2017 to 2018. Megadeals aside, the tariffs imposed on downstream products such as steel and aluminum negatively impacted M&A momentum last year, a trend that will likely continue as we look ahead. Among the topline findings from our Global Metals Deals Insights Year-end 2018 report are:

  • Deal value reached $53.4 billion, a 90% increase from 2017
  • The total number of deals dropped 9% from 2017 to 634
  • Average deal size was $160.5 million, a 113% increase compared to 2017

The three megadeals accounted for over a third of deal value in 2018, totaling $18.1 billion, and occurred during the first three quarters of 2018. This explains why deal value in Q4 declined 70% sequentially to $5 billion. The absence of megadeals in Q4 also contributed to a 62% decrease in average deal size, which was down to $69 million.

On a regional basis, Asia and Oceania continued to drive transactions, having accounted for over two-thirds of the deals that took place and more than half of the dollars transacted in 2018. This was a steady trend throughout the year as these regions accounted for more than half of deal volume in each quarter as both target and acquirer regions. Overall, we saw 326 deals for a total of $34.4 billion from Asia and Oceania. The UK and Eurozone regions were next in line, with 78 deals valued at $2.1 billion and North America closely followed with 6 fewer deals but more than two and a half times higher value.

Strategic investor activity dominated 2018, having accounted for nearly 90% of deal value and almost two-thirds of the deals that took place. We saw a slight dip in Q4 where financial investors accounted for almost half of deal value, a stark difference from the 8% we saw in Q3. That said, we see this as more of an outlier than a trend moving forward as cash-rich companies with strategic agendas will continue to account for the majority of deals.

Looking ahead, we expect the metals industry to face the same uncertainties that played a role in the decrease in the number of deals in 2018, including geopolitical instability and trade tensions. We’ll also likely witness further consolidation in Asian markets. This is due to overcapacity and a government goal to go from 33% to 60% of their national steel capacity with its top ten (mostly state-owned) producers by next year.

There are two routes the M&A market will take this year. On one hand, we are keeping an eye on U.S. and China trade talks and the impending ratification of the U.S.M.C.A. Easing trade tensions could encourage companies to aim for sustained growth through acquisitions, joint ventures and strategic partnerships that were less realistic in 2018 due to macroeconomic factors. On the other hand, the geopolitical climate and continued uncertainty could stunt M&A activity in 2019 as companies patiently and strategically take time to review their portfolios. If this occurs, we could see an increase in divestitures which would provide value to both strategic and financial buyers.

We are also closely monitoring additional hurdles that could impact M&A in the short term. Among those are investor reservations surrounding Brexit and a U.S. presidential election in 2020. You can read more on our deals recap for 2018 and outlook for 2019 with a copy of our 2018 report here.