PricewaterhouseCoopers recently released its Q4 2016 Deal Insights Report. Among the findings,
- For Q4 2016, the total deal value of $12.9 billion for deals with disclosed value greater than $50 million was 12% higher than last quarter and 106% higher than Q4 2015.
- Deal value in 2016 was driven by M&A activity in China, as eight of the 10 largest deals throughout the year were announced by Chinese acquirers.
- Over the past three years, 77% of deal activity has occurred locally.
I had a chance to discuss the metals m&a market with Michael Tomera, PwC’s metals division leader, based in Pittsburgh.
Jeff Yoders: Deal volume finally took off in Q4. What did the election have to do with it?
Michael Tomera: A key driver in this global report did have to do with Chinese deals. That was the driver, industry consolidation over there, over the last two quarters. There is definitely optimism for what’s going on with the new administration.
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Chinese steel industry consolidation, as much of a glimpse as we have of what’s going on in China — it is quite difficult to get exact details and good information out of China — it does, indeed, look like consolidation over there is happening and maybe even the reduction in capacity that they have said they want to do. It does look like that … from the information that is available.
JY: How so? In some of these large mergers, such as between Baosteel and Wuhan Iron and Steel? Or from some other measures?
MT: Generally, I think what a lot of the industry folks have been looking at is the need to curb excess Chinese capacity. The Chinese have said they are trying to do that, cut the capacity, and even if it’s less than the numbers they’re talking about cutting to… there’s going to be an impact on imports into North America.
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What happens with that, combined with anti-dumping actions, is really going to drive the impact on this market. The anti-dumping regulations are things that people in the North American market are going to continue to look at rather than discussing reductions in Chinese capacity simply because anti-dumping and countervailing duties, and their collection, are things that they can independently verify.
JY: Steel deals took off in Q4, is the steel sector a good place to invest again?
MT: 43 deals in the steel category, 40% of all deals in 2016. It looks like (steel investing is back). There’s been more going in anti-dumping actions in steel than other metals categories. We can’t predict what might happen with steel, aluminum or other individual metals sectors, but it does look like anti-dumping duties will be a factor. It seems like there is a fair amount of capital available among acquirers and private-equities and there is infrastructure planning going on from the Trump administration, so these are the things that have contributed to the increased share values of metals companies, in general, and steel companies in particular since the election.
JY: The mergers and acquisitions market looks healthy, then?
MT: Probably in previous years, we thought deal conditions would be better than they were just yet, particularly at the beginning of ’15. There was a 104% increase in deal value vs. Q1 2015. Now, it really looks like things have turned a corner. There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.