- Deal appetite muted in 3Q18 despite 15% rise in deal value quarter-on-quarter
- 58% of global sector executives say they plan to pursue M&A in the next year
- Gold megadeal could ignite volume growth among other industry players
Global mining and metals deal appetite remained subdued in 3Q18 amid ongoing geopolitical uncertainty, according to the latest EY Mergers, acquisitions and capital raising in mining and metals. However, the 19th EY Global Capital Confidence Barometer (CCB) indicates that the sector could be poised for a rebound, with 58% of global mining executive respondents intending to pursue mergers and acquisitions (M&A) in the next 12 months, compared with 46% across all sectors.
While Q3 deal value rose by 25% quarter-on-quarter to US$16.8b, and volume was up 15% (115 deals), caution prevailed as mining companies continued to focus on balance sheet stability and returning cash to shareholders. This was reflected by a decline in capital raised, which fell by 22% during 3Q18 to US$50.2b – down from US$60.7b in Q2. But as markets continue to stabilize, Barrick’s announcement in Q3 that it will acquire Randgold for US$6.5b could influence other industry players to seek volume growth through M&A.
Lee Downham, EY Global Mining & Metals Transactions Leader, says:
“In the third quarter of 2018, mining and metals companies continued to tread carefully in their approach to dealmaking and capital allocation. Geopolitical instability, including ongoing trade turbulence, has compounded the sector’s focus on optionality across existing projects and a reluctance to execute higher-risk capital investments. But this approach will eventually have to shift more toward an investment-led strategy across the industry, with the potential for acquisitive growth.”
This sentiment is reflected by the CCB, which finds that the sector could be primed for a significant rise in M&A activity over the next year. Seventy-four percent of global mining and metals executives say that they expect the M&A market to improve in the next 12 months, up from 53% last year. And 52% say that their M&A pipeline will increase in the coming 12 months, compared with 34% a year ago. Sixty percent also expect to see an increase in the number of completed deals, almost double last year’s response rate (34%).
More than a quarter of CCB respondents (27%) expect to see an increase in cross-sector M&A driven by technology and digital.
Downham says: “While we have seen some companies looking toward measured growth through joint ventures and strategic partnerships, and there has been a notable acceleration in battery metals deals into the second half of the year, dealmaking has remained sluggish. The latest Capital Confidence Barometer indicates that caution could now be lifting, and 2019 may well see the sector enter a new phase, marked by acquisitive growth and bolder dealmaking.”
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How EY’s Global Mining & Metals Network can help your business
The sector is returning to growth, but mining and metals (M&M) companies face a transformed competitive and operating landscape. The need to improve shareholder returns will drive bold strategies to accelerate productivity, improve margins and better allocate capital to achieve long-term growth. Digital innovation will be a key enabler but the industry must overcome a poor track record of technology implementations. If M&M companies are to survive and thrive in a new energy world, they must embrace digital to optimize productivity from market to mine.
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About the data
All data on mergers and acquisitions, and capital raising was extracted from Thomson ONE and analyzed by EY teams. Only completed deals are included in the data and analysis.
About EY Global Capital Confidence Barometer
EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,600 senior executives from large companies around the world and across industry sectors. This is the 19th biannual CCB in the series, which began in November 2009; respondents for the 19th edition were surveyed in August and September 2018. This issue drew responses from 103 Mining & Metals executives from 14 countries. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve.