“Operating cash flows have been increasing while investors have been more nervous. The time of M&A opportunity appears to be now.” Lee Downham,
Global Mining and Metals Transaction Leader,
Ernst & Young
Our Global Capital Confidence Barometer: Mining and Metals reveals that companies in the sector have stronger balance sheets and valuations have decreased in recent months, increasing merger & acquisitions (M&A) opportunities. However, the global economic backdrop is making M&A decisions more difficult than ever.
Mining and metals executive responses indicated that:
- 50% intend to focus on growth over the next 12 months
- 51% of respondents with excess cash will focus on organic growth
- 84% believe regulatory pressures could impede growth
- 39% intend to pursue acquisitions over the next 12 months
- 49% will use cash to fund mergers & acquisitions
Strengthened balance sheets, more flexibility
Mining and metals companies are keen to maintain flexibility on their balance sheets to best respond to volatile market conditions; debt is available but securing debt on good terms remains challenging.
Expected change in debt to capital ratio over the next 12 months
Growth as the key focus
Growth is the top priority of 50% of mining and metals executives surveyed. The focus is to achieve this organically, with the most significant concern being mounting regulatory pressures and the impact this may have on growth.
Areas of regulation that pose the most significant risks to business growth and profitability over the next 12 months
Stable M&A outlook against short term market volatility
Companies are well positioned to undertake M&A, where balance sheets are stronger and valuations have decreased in recent months. Executives are positive about the deal opportunities and the prospect of closing deals. However, we would expect to see a shift towards M&A on the back of the softening of commodity prices — and resulting in a fall in valuations across the sector — as targets now look to be more affordable than earlier in 2011.
Level of confidence at the global level
The global economic backdrop is making M&A decisions more difficult than ever. If economic factors stabilise, we may see a resurgence of M&A activity. The time of opportunity appears to be now.