Mining and metals M&A: confidence up but deals lag
London, 9 May 2013
Mining and metals companies are more confident in the global economic outlook than six months ago but remain cautious when it comes to pursuing acquisitions, according to EY’s latest six-monthly Capital Confidence Barometer – Mining & Metals, released today.
The report is based on a survey of 193 executives from mining and metals companies worldwide, from a broader survey of 1,600 executives from 50 countries undertaken in February and March 2013.
Mining and metals respondents are more optimistic about the global economy than six months ago, with 57% viewing it as improving, compared with 21% in October 2012.
Encouragingly, growth is the main focus for 44% of companies in the sector, up from 38% six months ago, and 46% view credit availability as improving, up from 30%.
However, despite the more positive sentiment, M&A appetite remains subdued, with 24% respondents intending to pursue an acquisition in the next 12 months, down from 28% in October.
EY’s Global Mining & Metals Transactions Advisory Leader, Lee Downham, says:
“Companies are instead opting for lower risk organic growth, optimizing capital allocation, and strategic divestments. For those where M&A is still a priority, smaller bolt-on acquisitions are preferred.”
The findings are consistent with Q1 2013 M&A data for the sector, with total deal value down 45% year-on-year to US$16.3b and deal volume down 35% to 168 deals.
“Companies are pausing for breath right now, they are focusing on optimizing their operational and capital base – although those ignoring M&A may be missing out where valuations are depressed, providing potentially attractive returns on deals,” says Downham.
The Capital Confidence Barometer also confirmed that capital allocation decisions are rising up the boardroom agenda, with 54% of mining and metals companies saying they have a greater focus on it now, up from 44% six months ago.
“Capital allocation decisions are becoming more complex, where mining and metals companies must balance the demands of their equity shareholders with those of host governments, employees and local communities – all of which have different priorities and differing investment horizons.”
“The winners in the next investment cycle will be those who have the best approach to capital planning.”
Downham says that capital recycling through asset divestitures or potential stake divestments will remain a key priority for large producers. This is supported by EY’s recent Global Corporate Divestment study which revealed that 43% of respondents expected to initiate divestment plans over the next two years.
“This will present buying opportunities, most likely for those with access to private capital.”
Q1 2013 summary: mining and metals transaction and capital raising
- 168 deals worth US$16.3b, down 35% and 45% compared to Q1 2012
- Gold was the most targeted commodity (42% share of global deal value)
- The value of overall capital raisings for the quarter increased to US$91.8b from 633 issues, compared to US$67.3b from 725 issues in Q1 2012, driven by a number of large loans.
- 73 loans raised US$56.0b
- 6 IPOs raised US$451m
- 484 follow-on issues raised US$8.9b
- 44 bond issues raised US$21.6b
26 convertible bond issues raised US$4.8b
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