NEW YORK, Aug. 5, 2008 (PRIME NEWSWIRE) -- M&A activity in the industrial products industry faired well during the first half of the year; however weak economic conditions continue to cause hesitancy toward mega-deals (deals exceeding $10 billion) in the industrial manufacturing, transportation & logistics (T&L), chemicals and metals sectors, according to a series of second-quarter M&A reports released by PricewaterhouseCoopers LLP today.
The lack of mega-deal announcements during the second quarter resulted in the decline of average deal value across all categories. Accordingly, deal value levels set in the first half of 2008 are expected to fall short of 2007 levels, with the exception of the T&L sector, where four of the five largest deals of the year were announced during the second quarter. One common element being experienced by all of the sectors is the withdrawal of financial investors from M&A deals. Financial investors have shifted their focus away from the industrial products industry sectors most likely due to a lack of available funding.
"M&A activity for industrial products companies, as measured by deals, continues to be challenged by a relatively weak economic and financing environment, though we note a continued interest in large deals as well as deals involving U.S. targets across most sectors," said Dean Simone, U.S. industrial products leader at PricewaterhouseCoopers. "Given the amount of significant deal announcements made early in the third quarter, we expect that many companies are beginning to consider even larger M&A moves that will impact total deal value for 2008. Notwithstanding this interest in large deals and domestic targets, we continue to expect well-capitalized strategic investors to drive overall M&A activity until improvements in the credit environment lead financial investors to regain their appetites for risk."
Details on each sub-sector M&A report follows:
Industrial Manufacturing
Deal activity in the industrial manufacturing sector for the first half of the year is not on target to exceed the level achieved in 2007, according to Assembling Value: Industrial Manufacturing Mergers & Acquisitions Analysis - Second Quarter 2008. However, based on the 76 deals announced during the first half of 2008, the sector should be on pace to at least meet the deal volume achieved in 2006.
Total value for deals announced during the first half of 2008 (with a disclosed value of at least $50 million) was $24.9 billion, which, on an annualized basis, places 2008 short of the deal value accumulated in 2007 ($87 billion). With only four large deals announced so far this year, 2008 is not likely to achieve the levels reached in 2006 and 2007, when 17 large deals were announced in each year. The reduction in large deals also contributed to a decline in average disclosed deal value, which dropped 21 percent to $328 million, in comparison with the average deal value during the first half of 2007, which totaled $417 million.
The industrial manufacturing sector also experienced a decrease in announced deals involving a financial acquirer during the first half of 2008 in comparison to deal announcements in 2007 (24 percent and 35 percent, respectively). Not only did overall financial investors' involvement decline, but their participation in large deals (worth more than $1 billion) was also weak.
Regional findings show that the UK/Eurozone region leads with respect to deal activity and value, accounting for 34 percent of deal activity announced during the first half of the year. The Asia and Oceania region (Australia, New Zealand Melanesia, Micronesia and Polynesia) also experienced significant deal activity (25 percent), but did not achieve noteworthy deal value levels. While the overall number of deals involving U.S. targets has declined for deals announced during the first half of 2008 (20) compared with those during 2007 (65) and 2006 (55), the share of non-U.S. acquisitions of U.S. targets is on pace to exceed 2006 and 2007 levels. Due to the weakness of the U.S. dollar, interest in U.S. targets on the part of cross-border acquirers is expected to remain high.
Chemicals
Small deal activity continues to drive healthy deal volume in the global chemicals industry with 374 deals announced in the first half of 2008, according to the PricewaterhouseCoopers LLP report Chemical Compounds: Global Chemicals Mergers & Acquisitions Analysis - Second Quarter 2008 . While growth in deal volume almost doubled since the first quarter, average deal value declined to $340 million, compared with approximately $545 million in Q1. There were no large deals (worth more than $1 billion) announced this quarter, indicating that the industry is delaying large investments and focusing on smaller transactions. In fact, in the second quarter, 44 middle-market deals (with reported value of at least $50 million) were announced compared with 157 small deals (valued at less than $50 million), indicating that the chemical industry is taking incremental steps to diversify product and service offerings and counteract high raw material costs without pursuing large transactions.
At an annualized rate, deal value and volume in the first half of 2008 are not on track to meet 2007 levels. However, if several large deals that are expected to close in the third quarter are finalized, deal value could meet or exceed the 2006 value of $55 billion.
The lack of large deal transactions reveals underlying global economic trends. As predicted in previous reports, the regional distribution of deals continues to be dominated by both Asia-Pacific and Middle Eastern players, while activity in North America and Western Europe declined.
Credit market woes have altered the amount of financial investor activity in the chemicals industry. While these bidders accounted for 20 percent of the activity in the second quarter of 2008 (an increase of 10 percent since the first quarter), their involvement is behind 2006 levels, when financial investors were responsible for 26 percent of deals and on par with 2007 levels, when they held 21 percent of all activity.
Transportation & Logistics (T&L)
According to the second quarter edition of Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis, total T&L deal value for the first half of 2008 is on pace to surpass 2007 totals. The rapid rise in deal value over the first half of the year has been driven primarily by the growing interest in large T&L deals (deals with disclosed value of at least $1 billion) with four of the five largest deals of the year being announced in the second quarter. While deal value is on track to surpass 2007 levels, deal volume is falling short. In the first half of 2008, there were 84 deals announced, compared to the 190 announced for all of 2007.
Interest in large deals was robust during the first half of 2008, with 11 deals announced, placing 2008 in the position to exceed both the 2006 and the 2007 levels (20 and 16 deals, respectively). The largest deal announcement of the year was also the first announced since 2006, with a disclosed value exceeding $10 billion. Of the large deals announced this year, three involved a U.S. entity.
Despite the overall decline in participation by financial investors in the T&L industry, approximately one-third of deal volume (28 deals) during the first half of 2008 were handled by these acquirers, who have favored shipping and logistics deals over other market segments.
Firms in Asia and Oceania continued to serve as significant contributors as both targets and acquirers in deal announcements of more than $50 million during the first quarter. However, the UK/Eurozone was added to the mix, exceeding Asia and Oceania in deal volume (28 deals versus 27 deals, respectively) and deal value (35.5 percent and 21.1 percent of large deals) for the first half of 2008. Both regions are on pace to meet levels set in 2007. While North America only contributed 16.9 percent of deal volume for the first half of 2008, the region exceeded expectations by contributing 34.7 percent of deal value. Chinese targets accounted for almost half of the 18 deals (8 deals) announced within the BRIC nations, as China continues to consolidate product and service providers in the transportation and logistics industry.
Metals
The pace of deal activity in the global metals industry increased in the first half of 2008 while the total value of those deals declined significantly, according to Forging Ahead: Global Mergers and Acquisitions Analysis - Second Quarter 2008. A total of 68 deals (with values of at least $50 million) were announced in the first half of the year, which is on pace to exceed the 116 deals announced during 2006 and to match the 143 transactions announced last year. For the first half of 2008, total deal value reached $42.9 billion. At the current rate, deal value for all of 2008 is on pace to fall far short of both the $186.7 billion reached in 2006 and the $298.4 billion achieved in 2007.
The pace of large deal activity (deals exceeding $1 billion) remained robust in the first half of 2008. The 10 large deals announced in Q1 and Q2 are on pace to exceed the 19 large deals announced during 2006, but will fall short of the 30 deals announced last year. While large deal activity remained strong, the absence of mega-deals (deals exceeding $10 billion) contributed heavily to the decline in total deal value during the first half of 2008. After a prior two-year period that contained several mega-deals, no such agreements were unveiled during the first half of 2008.
Financial investors have all but abandoned the metals industry and abdicated to strategic investors, who accounted for 97 percent of total deal value during the first half of 2008. Interest from financial investors has slowly waned over the past several years with strategic investors accounting for 93 percent of deal value in 2007 and 88 percent in 2006. On the back of strong industry fundamentals and a tightened credit market, well-capitalized strategic investors will likely continue their dominant role for the balance of 2008.
Nearly one-third (32 percent) of total deal value was used to purchase companies located in North America with another 33 percent used to acquire companies located in the Asia and Oceania region. Of the 68 deals announced during the first half of the year, 28 percent involved a target located in the U.S. and 44 percent involved a target in the Asia and Oceania region. The proportion of cross-border deals for U.S. targets has increased consistently, from just over 30 percent of deals announced in 2006, to 50 percent in 2007, and 67 percent during the first half of 2008. Almost half (48 percent) of the acquirers were located in Asia and Oceania, based on number of deals, with only 11 percent located in North America.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
For more information and to access the reports, visit:
Assembling Value: Industrial Manufacturing Mergers & Acquisitions Analysis - Second Quarter 2008: www.pwc.com/manufacturing.
Chemical Compounds: Global Chemicals Mergers & Acquisitions Analysis - Second Quarter 2008: www.pwc.com/chemicals.
Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis: www.pwc.com/transport.
Forging Ahead: Global Mergers and Acquisitions Analysis - Second Quarter 2008: www.pwc.com/metals.
All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.