NEW YORK, Nov. 11, 2008 (GLOBE NEWSWIRE) -- While M&A activity in the industrial products industry performed well during the first quarter of 2008, results from the second and third quarters indicate a downward trend for most sectors, according to a series of third-quarter M&A reports released today by PricewaterhouseCoopers LLP. Deal values suffered in the metals and industrial manufacturing sectors, and the pace of deal activity declined in the transportation and logistics (T&L) sector. The chemicals sector was the only industry to experience an uptick in both deal value and deal activity throughout 2008.
Due to the lack of mega-deal announcements in the second quarter (deals exceeding $10 billion), combined with an absence of large deals (deals with a disclosed value of at least $1 billion) in the third quarter in the industrial manufacturing and metals sectors, total deal value is not on pace to exceed levels achieved in 2007 in these sectors. Even though there were 14 large deals announced in the T&L sector during the third quarter, some deals have since been withdrawn and others have yet to be finalized. This will likely impact deal value in this sector through the rest of the year. Wavering deals continue to impact financial investor confidence in industrial products M&A, allowing strategic investors to dominate deals for companies in all sectors.
The recent strengthening of the U.S. dollar coupled with a deteriorating global credit market has caused a significant decline in cross-border deals for U.S. targets across all sectors. Increasingly, U.S. companies are acting as the acquirers or targets for other U.S. entities while foreign investors take a backseat.
"The weakened economy has clearly caught up with many companies in the industrial products sector that may have more aggressively pursued deals in the past," said Dean Simone, U.S. industrial products leader at PricewaterhouseCoopers. "The faltering credit markets are showing little sign of immediate improvement, leading to substantial doubt among financial investors in pursuing M&A activities. Meanwhile, strategic players, specifically in the transportation & logistics and chemicals sectors, continue to evaluate opportunities to negotiate large, transformational deals that add value to their companies."
Details on each sub-sector M&A report follows:
Industrial Manufacturing
The pace of deals in the global industrial manufacturing sector slowed significantly during the first three quarters of 2008, according to PricewaterhouseCoopers' report: Assembling Value: Industrial Manufacturing Mergers & Acquisitions Analysis - Third Quarter 2008.
The report found that the number of third-quarter deals with a disclosed value of at least $50 million (126 deals), is not likely to match last year's level (207 deals) but is on pace to approach the number of deals announced during 2006 (169 deals). In addition, the total value of deals announced during the first three quarters of 2008 ($35 billion) is significantly behind last year's level ($88 billion), mainly due to an absence of large deal announcements (defined as deals with a disclosed value of at least $1 billion) during the third quarter; there were only four large deals announced during the first half of 2008. Average deal value also declined, totalling only $277 million in the first three quarters of 2008, compared to $425 million during the same time period last year and $545 million in the first three quarters of 2006.
According to the report, this year's reduction in large deal announcements is the direct result of a weak financing environment along with a decreased role of financial investors in deals. In the past, financial buyers have typically been involved in larger deals with higher values. In 2008, financial investors participated in only 33 deals, allowing strategic investors to claim 74 percent of the ownership of industrial manufacturing deals.
Chemicals
According to PricewaterhouseCoopers' report, Chemical Compounds: Global Chemicals Mergers & Acquisitions Analysis - Third Quarter 2008, large deal announcements and aggressive deal activity during the third quarter of 2008 propelled the global chemicals industry to new M&A levels. A total of 27 deals (with a disclosed value of at least $50 million) were announced during the third quarter, bringing the total amount of chemical deals to 71 through the first three quarters of 2008.
The report also showed that six large deal announcements (defined as deals worth more than $1 billion) in the third quarter helped deal value climb to $46 billion in through the third quarter of 2008 (up from the $16 billion in value achieved in the first half of the year). Given the current state of the economy, these high-profile, transformational deals illustrate that many chemical companies are still preparing for future growth. However, deal value is significantly shy of last year's $119 billion and is still short of 2006's level of $55 billion.
As reported in previous quarters, Chemical Compounds found that strategic investors act as the majority financers of deal activity in the chemicals sector - accounting for over 80 percent of deal value accumulated during the first three quarters of 2008. Such a trend persists due to a continued strain on the credit markets and restricted access to financing.
Transportation & Logistics (T&L)
PricewaterhouseCoopers' report, Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis, reveals that levels of deal activity and total deal value in the T&L industry announced during the first three quarters of 2008 are not likely to surpass last year's totals. Deal activity slowed during the third quarter, with only 37 deals (disclosed value of at least $50 million) announced, bringing the total deals for 2008 to 125, which is not on pace to match the 193 deals announced in 2007.
There was a significant amount of large deals (disclosed value of at least $1 billion) announced through the third quarter of 2008, with 14 large deals contributing a total deal value of $66 billion. However, given the current economic and credit environment, deal activity in the fourth quarter will likely not exceed the levels seen in the third quarter and may even decline. Accordingly, deal value in 2008 is not expected to match the levels of the previous two years. In 2007, there were 16 large deals and a total deal value of $81 billion, and in 2006 there were 20 large deals and a total deal value of $161 billion.
Consistent with previous quarters, financial investors scaled back on deals involving T&L targets during the first three quarters of 2008, accounting for involvement in only 34 percent of deals, compared to 40 percent of deals in 2007. The tightening economy and decreased availability of liquidity contributed to the continuing trend of well-capitalized strategic investors prevailing in M&A in this sector.
Metals
According to PricewaterhouseCoopers' LLP report: Forging Ahead: Global Mergers and Acquisitions Analysis - Third Quarter 2008, the current global credit crisis and economic slowdown contributed to a significant decrease in deal value in the global metals industry during the first three quarters of 2008. Total deal values remained sluggish this year, totaling only $72 billion during the first three quarters, indicating that deal value will not surpass last year's total of $298 billion. An absence of larger deal announcements (deal value of at least $10 billion) coupled with a significant decline in average deal value, were the major contributors to the overall decline in total deal value.
In spite of the tightened liquidity market, the pace of deal activity for metals targets remained robust, as measured by the number of deals (with values of at least $50 million) announced during the first three quarters of 2008 (105 deals). On another positive note, nearly half of the deals announced during the first three quarters of 2008 have already been completed.
Consistent with previous quarters, strategic investors remain at the forefront of deal-making in the global metals industry, accounting for the majority (80 percent) of announced deal value during the first three quarters of 2008. Given the current economic crisis, financial investors are likely to continue to shy away from the deal table, clearing the way for strategic investors, which claimed 93 percent of announced deal value in 2007. However, investors remain increasingly concerned about the global equity markets in regards to whether or not deals will actually be finalized and announcements consummated.
For more information and to access the reports, visit:
Assembling Value: Industrial Manufacturing Mergers & Acquisitions Analysis - Third Quarter 2008: www.pwc.com/manufacturing.
Chemical Compounds: Global Chemicals Mergers & Acquisitions Analysis - Third Quarter 2008: www.pwc.com/chemicals.
Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis - Third Quarter 2008: www.pwc.com/transport.
Forging Ahead: Global Mergers and Acquisitions Analysis - Third Quarter 2008: www.pwc.com/metals.
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