PwC: Value of M&A Metals Deals Surges 90% in 2018

Last year was a big one for a M&A activity in the world of metals.
Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook
According to a report released yesterday by PwC, the total value of metals M&A deals in 2018 hit $53.4 billion — up from $28.1 billion in 2017 — paced by a trio of megadeals (deals of $5 billion or greater).
However, drilling deeper into the numbers and happenings of 2018, the report states political conditions impacted the metals M&A climate.
“While these megadeals drove increased average deal size, the various tariffs imposed on and impacting steel and aluminium (and other downstream products) may have negatively impacted M&A momentum,” the PwC report states. “This may be evidenced by overall deal volume declining in 2018 and favoring within-border transactions compared to 2017. While likely only temporary, the uncertainty caused by the heated geopolitical climate may impact M&A into 2019.”
Average deal size, at $160.5 million, was up 113% from 2017, but down 62% in Q4 2018 compared with Q3 2018.
Deal volume, however, at 163 in 2018, marked a 9% drop from the previous year, and an 18% drop in Q4 from the previous quarter.
The biggest deal of the year was the $6.5 billion purchase of Essar Steel by a joint venture led by ArcelorMittal, as the former had been subject to bankruptcy proceedings under India’s Insolvency and Bankruptcy Code.
Meanwhile, Siyuanhe Iron & Steel Industry Development Equity Investment Fund’s acquisition of Chongqing Changshou Iron & Steel Co. Ltd. for $662.6 million was the largest deal of Q4 2018.
By metal, steel deals accounted for 51% of total deal value in 2018, according to the report, as well as 44% of deal volume.
By region, Asia and Oceania was the most active ground for M&A activity last year, accounting for 68% of total deal value (North America came in second at 22%) and 56% of deal volume.
Speaking to China, specifically, PwC forecasts steel sector consolidation to continue this year.
“While Asia has seen the most M&A activity, the Chinese steel industry continues to struggle with overcapacity and is likely to witness more consolidation in 2019, as the government aims to put 60% of its national steel capacity in the hands of its top ten (mostly state-owned) producers by 2020; up from 33% presently,” the report states.
According to the World Steel Association, China’s crude steel production hit 77.6 million tons in November, up 10.8% year over year despite the start of production curbs for the winter heating season.
PwC cites trade talks between the U.S. and China and the potential ratification of the United States-Mexico-Canada Agreement (USMCA) as factors that could engender a climate of increased M&A activity in 2019.
“The geopolitical climate and continued uncertainty, on the other hand, could lead to companies slowing M&A activity in 2019 and taking time to review their portfolios amidst the uncertainty,” PwC states in its report. “This may lead to an increase in divestitures, which could provide value for both strategic and financial buyers. Other hurdles which may impact M&A activity into 2019 include investor reservations surrounding Brexit (trade relations between the UK and the EU) and the looming United States elections in 2020.”
While there has been some minimal progress between the U.S. and China, the world’s top two economies still appear to be far apart on a number of issues (as MetalMiner’s Stuart Burns posited yesterday). President Donald Trump and President Xi Jinping held talks during the Group of 20 summit in Argentina (held Nov. 30-Dec. 1) and an additional round of talks were held Jan. 7-9 in Beijing. However, another round of talks, which would have brought Chinese officials to Washington, D.C., appears to have fizzled out, according to media reports.
Want to a see Cold Rolled price forecast? Get two monthly reports for free!
Should the parties not reach a deal by March 1, the U.S.’s delayed tariff hike — from 10% to 25% on $200 billion worth of Chinese imports announced in September — would likely go into effect, again injecting uncertainty and shaking investor confidence.

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to Top