Metals Industry M&A Declines in Value

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M&A Activity

Metals industry mergers and acquisitions are beginning to decline in value. The pool of “attractive takeover targets” has plunged after consolidation, according to an article from this morning’s edition of Purchasing.com. Although the number of mergers valued at $50 million or more compares well with last year’s number, with 68 deals in the first half of 2008 and 70 in the first half of 2007, the rest of the year should pose a contrast. In today’s article, Purchasing.com writes, “The total value of those deals dropped to $42.9 billion in the first six months, from $73.5 billion a year earlier. At the current rate, the 2008 total of merger deals would fall short of the $298.4 billion of 2007 and the $186.7 billion recorded in 2006.”

Purchasing.com also mentions something that we discussed last week: That more companies have attempted to acquire and integrate suppliers of their most essential raw materials. Steelmakers are the most active in these regards, on the search for more affordable iron-ore. Recently, Pricewaterhouse Coopers published a study on 2008 M&A activity that thoroughly explored the topic: “The aluminum sector continued to see deal activity, with $8.7 billion in announced deals during the first quarter, but the steel sector was even more active, with $10.0 billion in announced deals.”

In addition to vertical integration in the steel industry, strategic investors and companies hope to expand their geographic reach. In their study, Pricewaterhouse noted that interest in North American targets remains strong. “Targets in this region accounted for 42 percent and 26 percent of the value and number of deals announced, respectively, primarily led by non-US acquirers. Interest in Asia-Pacific and South American targets remained high, especially those in China and Brazil. While no deals were announced for Russian targets, acquirers located in that region were quite active, accounting for four of the eight deals larger than $1.0 billion announced during the quarter.”

–Amy Edwards

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