RENO, NV – With stronger balance sheets, improved credit availability and stabilizing metal prices, PwC Tuesday forecast the recovery in global metals M&A is expected to continue for this balance of this year.
Iron ore targets were the primary driver of global metals M&A activity during the first quarter of 2011, contributing almost 40% of the deals worth a total of $5.1 billion, a significant increase over full-year 2010 when iron ore represented only 20% of total deals.
“The focus on iron ore deals illustrates the need for companies to integrate reliable iron ore supplies into their organizational structures,” said Jim Forbes, PwC global materials leader. “Additionally, we’ve seen an uptick in these deals due to horizontal consolidation of some of the smaller players.”
The iron ore M&A category was aided by the proposed $4.1 billion acquisition of Canadian miner Consolidated Thomson.
In their analysis, PwC noted that the number of mega deals with a disclosed value of at least $1 billion decreased slightly during the first quarter. During the first-quarter 2011, four mega deals were announced.
In the first quarter of this year, there were 26 deals with value greater than $50 million, accounting for $12.9 billion in total deal value, a 105% increase from the $6.3 billion in the first quarter of 2010, which had two fewer deal. Average deal size was $500 million during the first-quarter 2011, up 67% from the $300 million average deal size in the first quarter of 2010.
Meanwhile, PwC industrial products analysts found that metals companies are becoming “better positioned to pay for new deals.”
Increased cash balances, combined with improved credit availability and extremely low interest rates positioned companies to take advantage of M&A opportunities. “These trends should lead to increased activity, at least in the near term,” said PwC.
In their analysis, PwC also noted that financial investors are increasing their involvement in the metals sector. “Illustrating this most notably was the $1.95 billion bid for Companhia Brasileira de Mineração e Metalurgica (CBMM) by a group of Asian investor companies in the quarter’s third largest deal.”
“The recovery in the metals deal market, which began last year, is expected to continue,” PwC concluded.