Window of opportunity for astute mining and metals acquirers
Sydney, 26 October 2011 — An uptick in mining and metals M&A activity in the final quarter of 2011 is likely as cashed up companies take advantage of recent declines in valuations to pursue acquisitions, says Ernst & Young’s Global Mining & Metals Transaction Advisory Leader, Lee Downham.
Q3 deal figures for the sector reflect the impact of jittery markets in keeping a lid on M&A execution, with Ernst & Young analysis showing a 6% drop in deal volume for the first nine months of 2011 to 779, compared to 827 deals for the same period in 2010.
At the same time, mining and metals sector respondents to Ernst & Young’s recent Global Capital Confidence Barometer shows companies have strong balance sheets, that growth is the top priority for 50% of those surveyed, and that 39% intend to make acquisitions in the next 12 months.
“Companies are well positioned to undertake M&A and there is value to be created for the right deals, but the global economic backdrop and volatile market conditions are making evaluation and execution of deals incredibly difficult,” says Downham.
“If global markets continue to stabilize, it’s likely we will see a resurgence of M&A activity during the remainder of 2011.”
“We remain bullish about longer term demand outlook from the emerging economies and the softening in equity valuations off the back of the fall in commodity prices during September and early October may create more M&A opportunities.”
“There may well be real buying opportunities for canny acquirers.”
Not surprisingly the volatility in equity markets means deals will be funded with cash and debt.
“Balance sheets in the sector are strong with incredibly low gearing by comparison to recent years. This has been driven by concerted efforts to re-finance post the financial crisis and strong profitability over the past couple of years,” says Downham.
M&A in the mining and metals sector, January–September 2011
- 779 deals worth US$132b (compares to 827 deals worth US$78.9b for same period in 2010)
- 123 IPOs raised US$16.0b. Excluding the US$10b Glencore listing, IPOs for the sector in 2011 are significantly down year on year. Australian junior listings dominate IPOs by volume with 54.
- The US has taken the lead as the most active acquirer by deal value, on the back of a number of large domestic coal deals.
- The US has also taken the lead as the preferred destination by deal value, although not all deals were for mining targets.
Both the 3Q 2011 Mergers, acquisitions and capital raising in mining and metals and the Global Capital Confidence Barometer: Mining and Metals are available at www.ey.com/miningmetals.
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About Ernst & Young’s Global Mining & Metals Center
Ernst & Young’s Global Mining & Metals Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services.
The Center works to anticipate market trends identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.
About the Global Capital Confidence Barometer: Mining and Metals
Ernst & Young’s Global Capital Confidence Barometer is a survey of 1,000 senior executives from large companies around the world (including 75 mining and metals sector respondents) conducted by the Economist Intelligence Unit (EIU) during July and August.
