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In Fourth Quarter 2009, Industrial Manufacturing Deal Activity Experienced Exponential Growth, Finds PricewaterhouseCoopers
added: 2010-02-15

The pace of mergers and acquisitions (M&A) in the industrial manufacturing sector experienced sequential increases in both deal volume and value during the fourth quarter of 2009, as well as the sector's first year-over-year increase in the past eight quarters, according to a series of quarterly M&A reports released by PricewaterhouseCoopers LLP (PwC). The chemicals sector experienced an increase in deal volume but a decrease in value in Q4, while the metals sector showed an increase in deal volume and value compared to the previous quarter. Deal volume in the industrial manufacturing segment increased by 182 percent and deal value grew by 313 percent compared to the year ago quarter.

Overall, deal value in the Metals and Chemicals sector remained weak for Q4 2009 compared to 2008. However, Industrial Manufacturing bucked the trend, showing significant increase in deal value from Q3 2009 to Q4 2009 (313 percent). The number of large deals (deals of at least $1 billion) declined due in large part to the absence of financial buyers and credit considerations owing to limited available credit for most of the year. The deal market is expected to continue to be defined by smaller transactions until acquirers gain more certainty over the direction of the economy and the credit markets.

Regionally, targets located in Asia and Oceania continued to account for a significant portion of overall deal activity in Q4 2009, a persistent trend for several quarters. As acquirers, the Asia and Oceania region dominated the chemicals sector, accounting for 72 percent of deal value in Q4. This region also dominated in terms of acquirers, comprising more than 62 percent of overall deal value for the metals sector and more than 26 percent of deal value in the industrial manufacturing sector in the fourth quarter of 2009.

"Deal Activity in the industrial products market experienced a notable ebb and flow throughout 2009, with the industrial manufacturing and metals sectors providing reasons for optimism, particularly after a strong showing in Q4," said Dean Simone, U.S. industrial products leader at PricewaterhouseCoopers. "The concern heading into 2010 continues to be an astonishing lack of large deal activity, a trend that will need to reverse itself before the industry's recovery can gain further momentum."

The fourth quarter editions of PricewaterhouseCoopers' M&A reports also took an in-depth look at innovation and its potential for accelerating the economic recovery. As the economy recovers, companies hope to shrug off their "hunker down" mentality and find new ways to succeed. The question is: Which industrial products companies will be first to succeed, and how will they do it?

According to the reports, companies in the industrial products industry that will be best positioned to succeed are those that optimize their recent acquisitions and look inward to achieve the efficiencies necessary to cut and sustain costs, improve performance, and compete in an increasingly automated business environment.

"Innovation must become an area of greater emphasis for industrial products companies looking to gain an advantage in an increasingly competitive market," added Simone. "Metals, chemicals and industrial manufacturing companies that are most adept at developing creative and new ways of doing business and harnessing these innovative ideas to create value for their customers will see significant growth opportunities in the years ahead."

Details on each subsector M&A report follow:

Chemicals

Overall deal activity in the global chemicals industry was down for the year, as total deal value decreased to less than $30 billion in 2009 from $64 billion in 2008, according to a new PricewaterhouseCoopers LLP report, Chemical compounds: Fourth-quarter 2009 global chemicals industry mergers and acquisitions analysis. While the volume of small deals remained relatively consistent, large deals with transaction values greater than $1 billion declined significantly relative to previous years.

Total deal activity for the year also saw a decline, dropping nearly 17 percent compared to deal volume in 2008. This decline in activity was based on two primary factors: some transactions simply stalled during the economic downturn and remained sidelined, while others were pulled off the market entirely due to insufficient bids.

In 2009, large deal activity slowed compared to previous years. The 79 deals with a disclosed value announced in Q4 had a total value of $5 billion, including one deal with a transaction value of $2.4 billion, 15 deals valued between $50 million and $500 million ($136 million on average), and 63 deals valued at less than $50 million ($11 million on average).

Industrial Manufacturing

Mergers and acquisitions in the global industrial manufacturing industry not only continued last quarter's sequential momentum during the fourth quarter of 2009, but also increased on a year-over-year basis for the first time in eight quarters, according to the PricewaterhouseCoopers LLP report, Assembling value: Fourth-quarter 2009 global industrial manufacturing mergers and acquisitions analysis.

In Q4, both the number and value of deals increased year-over-year compared to the same quarter in the prior year. In the fourth quarter, deal volume increased 182 percent and deal value increased 313 percent. The last time both deal volume and value increased was the fourth quarter of 2007, when deal volume increased 68 percent year-over-year and deal value increased 243 percent year-over-year. Sequentially, deal value increased from third-quarter 2009 levels; however, deal volume remained flat at 31 transactions. Of the 31 announced deals, 22 (71 percent) were attributable to transactions involving industrial machinery manufacturers.

The deal environment showed a strong year-over-year recovery during Q4 and the proportion of transactions with values between $500 million and $1 billion modestly increased compared with 2008. However, larger deal activity (deals of at least $1 billion) remained weak in Q4, with the vast majority of transactions either small (less than $500 million) or undisclosed.

Metals

The pace of deal activity showed improvement during the fourth quarter of 2009 with 32 announced deals, an increase of 11 deals from the third quarter, according to the PricewaterhouseCoopers LLP report, Forging ahead: Fourth-quarter 2009 global metals industry mergers and acquisitions analysis.

On an annualized basis, the number of deals announced during the fourth quarter exceeded the number announced during all of 2009 and falls only slightly short of the total announced in 2008. However, announced deal value remains mostly anemic. Although the $4.9 billion of total deal value announced during the fourth quarter increased from the $3.7 billion in deal value in Q3, it is still lower than any other quarter in the past three years.

Based upon the trends in average deal values and range of deal values along with the rebound in the total number of announcements, it is clear that the metals deal market is recovering but that the focus of this activity remains on smaller deals. Large deal activity slowed during 2009, with five such deals announced during the year compared with 19 in 2008. In addition, none of the large deals in 2009 were announced during the most recent quarter.


Source: PR Newswire

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