The metals industry may be re-gaining momentum in M&A activity and could potentially see an uptick for the remainder of the year and into 2019. The $6.1 billion merger in the gold mining space headlined the increase in deal value for the third quarter of 2018, but the rise in demand of metals such as cobalt, lithium, and nickel as government initiatives to promote electric vehicles intensified globally, helping with the uptick as well. Here’s a quick snapshot of Q3 deal activity in the metals sector:
As a result of the $6.1 billion merger in the gold mining space, the value of “other metals” increased significantly from $1.8 billion last quarter to $10.8 billion this quarter. Deal value of steel and aluminum declined by 22% and 81% respectively over the last quarter, but deal volume in aluminum and iron ore improved by 20% and 7% respectively from last quarter. The ongoing tariff disputes led to margin pressure for smaller producers of steel and aluminum and downstream manufacturers, but it is expected to open up opportunities for strategic investors looking to consolidate and stay competitive.
Strategic investors continued to be dominant and accounted for 92% of deal value and 65% of deal volume this quarter. Financial buyers continued their conservative stance and are expected to refrain from initiating major deals in the sector in the near-term. Despite headwinds from global trade tensions and increasing interest rates, cash-rich corporations with strategic rationales are likely to drive deal activity for the rest of 2018 and into 2019.
North America led the quarter in terms of deal value with 58%, but Asia and Oceania maintained the dominance in deal volume consecutively for 12 quarters, as it accounted for 57% of acquisitions made. China remained the leading acquirer nation with the majority of domestic deals in the sector, followed by the US. Gold producers in Australia are trading on a similar price-to-cash flow ratio and their valuations are on par with North American companies, which could prompt investors to expand business by acquiring struggling North American rivals.
The impact of the US maintaining its stance on increased metal tariffs and allowing US companies to petition for exemptions from tariffs for highly specialized metal imports will likely shape North American deal activity for the remainder of 2018 and into next year.
Global industrial developments and rapidly changing technologies are also leading to disruption in demand for traditional metals. We’ll see an increase in focus on niche energy-related metals coupled with the demand for electric vehicles and battery storage, triggering an increased investment in cobalt, lithium, and nickel. In addition, the prospect of higher ACES (automated, connected, electric, and shared) vehicle adoption may lead to gradual divestments in metals such as platinum and palladium, which are used in catalytic converters for curbing emissions from gasoline and diesel-powered engines.
View the full Q3 2018 Metals deals report here.