The Abrasives Hub

RSS link

Industrial Manufacturing and Metals Deals Has Driven 2011 Industrial Products M&A Activity

By Elaine McClarence - 2012-02-06 13:28:35    
The global industrial products (IP) industry experienced an increase in deal volume over the course of 2011. There were 801 deals worth more than US$50 million compared to 783 deals in 2010. Industrial manufacturing and metals markets leading merger and acquisition (M&A) activity, according to a series of quarterly M&A reports released by PwC US.

The majority of deals within the IP sector were driven by companies focusing on smaller deals, an increase in divestitures and an uptick in local deals to create synergies. In addition, while strategic investors dominated overall activity, financial investors increased their participation in 2011 compared to the prior year.

PwC's IP practice examined activity in the fourth quarter of 2011 and full year 2011 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.

The industrial manufacturing sector saw the largest increase in activity with deals worth more than $50 million totaling 161 deals in 2011 compared to 135 deals in 2010. The metals industry also increased in activity with 122 transactions worth more than $50 million in 2011 compared to 106 deals in 2010. Although total industrial products deal volume increased, total deal value for transactions worth more than $50 million decreased to $362.5 billion in 2011 from $462.6 billion in 2010. Mega deals or transactions worth more than $1 billion slightly decreased in 2011 with a total of 72, compared to 80 mega deals in 2010. This contributed to a lower average deal value for deals worth more than $50 million - $45 million in 2011 compared to $59 million in 2010.

"2011 was all about smaller deals in industrial products as dealmakers remained conservative focusing on deals that were seen as less risky and that needed smaller levels of capital in today's uncertain economy. This trend was exemplified across the sector and especially in A&D where it was a record year for volume, mostly driven by smaller transactions, though we also note that a record deal in terms of size was announced in this sector," said Bob McCutcheon, U.S. industrial products and metals industry leader at PwC. "Deal activity in 2012 will depend on more stabilized financial markets, a global recovery and abatement in concerns over the European debt crisis. An uptick in action across industrial products in 2012 is anticipated, and our latest Manufacturing Barometer reports that U.S. industrial manufacturers are expected to continue to increase investment spending in the year ahead, including operational spending, and plans for M&A with a significant emphasis on expanding into new markets."

Divestitures became a major trend in deal activity in 2011 across all sectors of IP, as companies aimed to exit unprofitable markets and adjust product mixes to reflect changing customer demands. Divestiture deal value as a percentage of total M&A value increased to 33 percent from 30 percent from 2009-2010, and as much as 40 percent of activity in recent years has been related to spin-offs. Within the metals sector, divestitures accounted for 38.5 percent of deal activity which recorded 122 deals that were worth more than $50 million and a total value of $55.1 billion in 2011.

Spin-offs were also on the rise in 2011 as companies looked for attractive ways to separate high-growth or low-growth components of the business from more traditional pieces of the organization. The PwC IP practice released a special report in the fourth quarter of 2011 titled, "Using divestitures and spin-offs to best position an organization for growth."

Today, divestitures and spin-offs are taking longer to close than in previous years, with some companies being forced to go to market several times before successfully striking deals with buyers. In this environment, managing the divestiture process can be critical, from start to finish by assembling a team dedicated to managing and executing the deal and the operational separation simultaneously.

"To close deals and maximize the value of their assets, sellers should strive to gain a better, more comprehensive understanding of the complexities of the divestiture market, and gauge the full scope of buyer concerns and responding to the global economic crises that have changed the rules of the game," said McCutcheon. "Certain sellers are interested in acquiring capital as companies look to restructure their balance sheets by building up cash reserves or paying down debt. Selling a high-performing or high-value business unit at a desirable price can go a long way toward helping a company achieve that goal."

According to PwC's reports, the pace of local deals that were worth more than $50 million increased to 510 deals in 2011 compared to 487 deals in 2010. Industrial products cross-border deals remained flat in 2011 from the prior year - 36.4 percent of deals worth more than $50 million and 37.8 percent respectively. The pace of local market consolidation hastened as IP companies sought synergies to reduce expenses. For example, in the industrial manufacturing sector, the U.S. domestic market has been very active in the fourth quarter of 2011, contributing to an overall level for local transactions of 53.8 percent of deals worth $50 million or more, compared to 46.2 percent of cross-border deals, and 55.9 percent of local market deals for all of 2011, compared to 44.1 percent of cross-border deals. For the metals industry, the majority of local deals were led by Asia and Oceania in 2011 and China-based deals were the primary driver of activity with 37 transactions in 2011, given the emphasis that the Chinese government has put on steel company consolidation in its most recent Five Year Plan.

"Faced with substantial uncertainty, companies appeared to be opting for growth within their familiar domestic markets. Such moves limit the legal and cultural risks typically associated with cross-border transactions. We're also seeing higher growth prospects within emerging markets, which will likely keep Asian acquirers focused on targets within their borders. Mature markets such as the U.S. and Europe also continue to seek domestic consolidation as a tool for growth and competitor elimination," added PwC's McCutcheon. "One example of an exception was in the A&D space where European dealmakers increased activity, driven by both local market deals as well as outbound transactions. The increase in European outbound deals also contributed significantly to the overall rise in cross-border deals and foreign acquisitions of U.S. targets in 2011, totaling 20 local market transactions that were worth more than $50 million compared to 40 cross-border deals."

While strategic investors continued to lead activity across the IP industry, financial investors have started to gain steady momentum in 2011. Across all the sectors of industrial products, 26.3 percent of financial investors were involved in deals that were worth more than $50 million in 2011, a slight increase from 25.7 percent of deals in 2010. According to PwC's reports, A&D, engineering & construction and metals sectors have all experienced a slight increase of financial deals in 2011 compared to 2010.

"Strategic investors sought inorganic growth through acquisitions to stay current with global macro trends such as increasing global infrastructure," added McCutcheon. "While financial investments did increase in 2011, this was mostly pertained to smaller deals. In 2012, financial investors are expected to continue their steady climb into deals in the space, but strategic investors will remain well positioned, given healthy liquidity levels, to drive a high volume of deals."




Index

1. New Report on the Abrasives Industry in the UK
2. Construction in Ireland Key Trends and Opportunities to 2017
3. Finishing touches to single market for construction products
4. Strategy sets foundations for UK construction growth
5. OECD Unit labour costs down 0.1 % in the first quarter of 2013
6. European Commission gives 77 million boost to high-tech manufacturing sector SMEs
7. Diamond Innovations to shut Dublin plant
8. AMB China becomes top dog in the Nanjing region
9. The State of Play in the Abrasives Industry in 2012
10. Complete machining through technology integration
11. CSDA Announces Fall 2012-Winter 2013 Training Dates
12. MM Live UK 2012 - Call for Papers
13. 3 day High Intensity Grinding Course in New York
14. Industrial Manufacturing and Metals Deals Has Driven 2011 Industrial Products M&A Activity
15. Kennametal CEO Calls on Peers to Deliver the Promise of Manufacturing
16. Dresser-Rand Group Completes Synchrony Acquisition.
17. Thomas Corcoran of American Super Abrasives Passes Away
18. The Abrasives Hub to Sell Abrasive Industry Reports
19. US Construction Industry to Remain Flat in 2012, Says McGraw-Hill Construction Dodge Outlook Report
20. Steel Industry Calls for Shift in Vehicle Regulations
21. Global construction machinery market to grow 6.5% annually to 2015
22. Research and Markets Announces New Report on the Abrasives Market in the US
23. World Demand for Refractories to Approach 41 Million Metric Tons in 2014
24. Demand for Plastics Rises in South Africa
25. Growth in Global Construction to Outpace World GDP Over Next 10 Years

Show Index Only | Show full index

© 2010-2014 copyright Abrasives Hub Magazine | Designed by CreatorWWW | Powered by CreatorWWW™ (v.4.01) CMS | Site Optimised using CreatorSEO™