The global Metals industry was expected to face challenges in 2020 from continued softer demand, lower manufacturing levels, and ongoing changes resulting from trade negotiations and related tariffs, and in the first half of 2020, it was dealt an unexpected blow from the COVID-19 pandemic.
Industry suppliers continue to be faced with weakened demand from major downstream consumers in industrial manufacturing, aerospace, automotive, construction and others. This significant contraction in demand, along with a myriad of other challenges caused by the pandemic, resulted in decreased deal value, volume, and average deal size when compared to the first half of 2019. This impact is also evidenced by the decrease in deal volume from Q1 to Q2 2020, as many businesses, especially domestic, experienced their biggest disruptions from the pandemic to date.
“While uncertainties around the ongoing pandemic and recession weigh heavily on investors, companies with strong balance sheets and access to capital could drive a gradual pick-up in M&A activity in the months ahead, and we expect M&A to recover before the overall US economy.”
Other Metals contributed the most to the sector in terms of deal value and volume in H1 2020, driven by five of the top ten deals in H1 2020. It was also the only sub-sector that maintained total deal volumes from H1 2019, although deal value in the sub-sector dropped significantly: H1 2019 saw two megadeals of $10 billion and $7 billion, respectively, while in H1 2020 the maximum deal value reached only $0.5 billion.
Steel was the second highest contributor of deal volume and value in H1 2020. The sub-sector accounted for 32% of the total deal value in H1 2020, driven by two deals within the top ten. The sub-sector also experienced a decline in both deal volume and value compared to H1 2019.
Aluminum contributed 9% of total deal volume in H1 2020. The decline in deal volume was the least in the sub-sector among all sub-sectors. The sector has two deals listed among the top ten deals in H1 2020.
Iron ore accounted for 6% of the total volume in H1 2020 and contributed only 8% share of transaction value. The transaction volume in the sub-sector declined by 48% in H1 2020 compared to H1 2019.
Strategic investors contributed 56% and 51% share of total deal value and volume, respectively, in H1 2020. In Q2 2020, financial buyers remained active in the sector and contributed more deal value share than strategic investors for the first time since Q3 2019. It was the second time in the last 12 quarters that financial investors contributed more deal value than strategic investors.
Although talk of a slowdown in economic growth and an eventual recession became more prevalent at the end of 2019, the way it manifested in 2020 was unexpected. The COVID-19 pandemic up-ended business and life as usual, and the M&A landscape was no exception. News of several deals put on hold or canceled during the first half of 2020 permeated the deals community. Prospective corporate and private equity buyers alike have been forced to reevaluate planned and in-process deals due to the pandemic, with many adopting a “wait and see” approach. This slowdown is evidenced in the Metals deals metrics from the first half of 2019 vs 2020, as deal value has declined by 81% and deal volume declined by 12%.
While producers across the metals spectrum have all felt the squeeze, the steel industry has been acutely impacted. Producers of steel products have had to contend with decreasing demand, as consumption from major downstream industries such as manufacturing, auto, and construction were slowed by the pandemic and the measures to address it. Domestically, steel production has decreased due in part to reduced production from major automakers as they idled plants to prevent the spread of infection.
Faced with the immediate challenge of the pandemic, businesses focused on protecting worker safety, solving operational challenges, and bolstering liquidity, often leaving M&A strategies and activity on the backburner. However, as we move to the second half of 2020 and beyond, corporations and private equity firms may refocus their M&A efforts in an attempt to seek value through acquisitions or streamline core operations through divestitures. As experienced in previous downturns, proactive and timely M&A may help entities leapfrog competition, take share and accelerate recovery, as acquiring early in a downturn can lead to returns in excess of peer groups. Similarly, active and timely portfolio management and divestitures can help free up cash and capital to both reinforce business and allow future investment.
While uncertainties around the ongoing pandemic and recession weigh heavily on investors, companies with strong balance sheets and access to capital could drive a gradual pick-up in M&A activity in the months ahead, and we expect M&A to recover before the overall US economy.
The information presented in this report is an analysis of deals in the global metals industry. Deal information was sourced from Refinitiv and includes deals for which targets have an SIC code that falls into one of 30 metals industry groups. Certain adjustments have been made to the information to exclude transactions which are not specific to metals or incorporate relevant transactions that were omitted from the SIC industry codes.
This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between July 1, 2017 and June 30, 2020, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.
Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.
Metals Deals Leader, PwC US
US TAS Market Leader, Midwest Market, PwC US