M&A trends in 1Q 2018
The value of M&A transactions rose to US$25b during 1Q18 (up by 86% year-on-year) on the back of the transformational merger between two giant potash producers, PotashCorp and Agrium. However, reflecting the wait-and-see mood prevalent across the industry, activity elsewhere in other commodities was generally slow and the volume of transactions decreased by 16% year-on-year to 101 deals in 1Q18.
M&A trends (2012-1Q 2018)
As expected, key drivers of M&A activity continued to shift from divestments for debt reduction purposes to consolidation and strategic acquisitions.
Around 87% of transactions by value were driven by industry buyers, highlighting the strategic nature of deals. Debt restructuring continued in some sectors and regions though as management looked to optimize their capital structures after emerging from distress.
In addition to potash and aluminium, activity in the gold and coal sectors remained buoyant, representing around 15% of deals value. The gold sector saw at least four transactions with deal value in excess of US$200m while there were consolidative deals in the coal sector in China, Australia and South Africa. Assets in low-risk jurisdictions continued to attract more attention, with the notable exception being deals connected with commodities with limited geographical abundance, such as cobalt in the DRC. Over two-thirds of the transactions by volume were in Canada, Australia, China and South Africa.
Value of deals (US$) by target commodity
- As investment-led strategies continue to gain momentum on the back of strengthening balance sheets, we expect consolidative deals to drive an uptick in transactions through the year. However, a handful of divestment-led deals will be executed as portfolios continue to be reviewed.
- Strategic and financial investors alike position for growth in new world commodities, with activity in battery metals set to increase.
Capital raising trends in 1Q 2018
Capital raising activity remained relatively subdued during 1Q18 as industry participants maintained a focus on short-term facilities. While proceeds increased marginally by 1.2% quarter-on-quarter to US$53b in 1Q18, it represented a 3.9% fall from the same period last year.
The volume of transactions also fell from a quarterly average of 734 deals during 2018 to around 567 during 1Q18. China remained dominant, accounting for 41% of value of transactions, but there was also significant activity in Japan, the US, Canada and Australia.
Capital raised — value and volume (2012-1Q 2018)
Capital raised by asset class (US$b), Five-year trend
Equity issuance dropped by a third year-on-year, from US$6.4b raised in 1Q17 to circa US$4.4b in 1Q18. Of the US$4.4b raised through follow-on equity, almost 60% was used for short-term requirements such as working capital and debt payments. Another 25% of the proceeds from secondary listings were used to boost exploration activity, leaving just under 15% (US$640m) raised with the purpose of funding growth projects.
In addition to a focus on short-term needs, industry participants remain cautious about expanding debt despite improved access to traditional financing. Debt proceeds remained unchanged year-on-year at just over US$48b. However, there was evidently an inclination for term loans over bond issuance during 1Q18, with a preference for cheaper, secured and flexible instruments, to maintain lower financial risk continuing.
Capital raised by asset class — proceeds (US$b), quarter-on-quarter trendBack to Top
Capital raising outlook
The appetite to raise more capital will rise as strategies shift to growth.
Industry participants have largely focused on improving efficiency of existing assets and lowering financial risk as a way of creating shareholder value. Inevitable portfolio decisions to adapt to changing market dynamics and participate in new world commodities will result in increased debt and equity capital markets activity over the course of the year.Back to Top
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