NEW YORK, Feb. 17, 2009 (GLOBE NEWSWIRE) -- Deal activity in the global industrial manufacturing and metals industries declined in 2008, while mergers and acquisitions (M&A) in the chemicals and transportation and logistics (T&L) industries remained healthy, according to a series of fourth-quarter M&A reports released today by PricewaterhouseCoopers LLP (PwC).
The industrial manufacturing industry experienced the sharpest declines in deal value and volume, while M&A in the metals industry tapered off slightly in 2008. However, deal volume in the chemicals industry actually increased in 2008, due to a large number of small and mid-sized transactions. The T&L sector also experienced a relatively healthy year, with 43 deal announcements in the fourth quarter, and total deal value for the year exceeding 2007 levels.
Overall, large and mega-deal announcements declined across most industries compared to 2007 and 2006 levels, with the exception of the T&L sector. In light of the turbulent economy and tightened credit markets, well-capitalized strategic entities were again the most active investors in deals across sectors, as financial investors shied away from M&A amidst reduced access to financing. Due to the U.S. dollar's recent rally, cross-border deals for U.S. targets declined as foreign investors continued to engage in transactions abroad, using local market financing.
"Industrial products executives are increasingly apprehensive about the global economic crisis, and because of their deepening concern, many firms are reducing expenditures and operating in survival mode just to get through the next few months," said Dean Simone, U.S. industrial products leader at PricewaterhouseCoopers. "However, most executives have not given up hope for future growth, and continue to participate in strategic deals to the extent they can. This is evident in the T&L industry, which saw an uptick in M&A activity as the government turns a sharper focus to improving international infrastructure, including passenger ground and rail targets."
The fourth quarter editions of PricewaterhouseCoopers' M&A reports highlight the impact of current business conditions including weak credit markets and significantly reduced economic output on deals announced during the fourth quarter of 2008. A special report, "Pulse on market volatility and M&A," includes executive commentary on how each industry sector should navigate the current economic downturn and take advantage of the proposed government stimulus package.
In tandem with ongoing sluggishness in the U.S. and global economies, the industrial products industry was forced to make important adjustments in response to a significant drop in demand for its products. According to the report, losses in the industrial products sector were manifested in plant closings, job cuts and stalled capacity, as firms struggled to stabilize their operations while conserving assets.
The U.S. stimulus plan from the Obama administration may provide at least $150 billion for the construction and maintenance of public infrastructure. It will also pay for traditional transportation projects as well as upgrades to the nation's energy transmission and distribution systems. The cash infusion in these sectors may mitigate future contraction in the industrial products industries and will ultimately act as a buffer until global demand begins to accumulate.
"In terms of a short-term outlook, we believe the economy will continue to deteriorate until the massive debt and credit dysfunctions are addressed and consumer confidence returns. In light of this anticipated deterioration, we expect a number of divestitures as companies sell assets to raise cash and reposition themselves for future growth. Organizations' main priorities will entail building durable businesses that will be poised to succeed as we emerge from recession," added Simone. "In the interim, we will most likely see mergers of necessity, where organizations will align with stronger players to ride out the downturn. We'll also see a re-emergence of private equity and sovereign wealth funds as deal participants, which should help businesses realign and reduce excess capacity."
Details on each sub-sector M&A report follows:
Industrial Manufacturing
Deal activity in the global industrial manufacturing industry declined significantly in 2008, according to PwC's report Assembling Value: Fourth-quarter 2008 Mergers and Acquisitions Analysis. Compared with 2007 M&A levels, overall deal volume decreased 32 percent and deal value fell 57 percent in 2008.
The pace of M&A activity during 2008 (141 deals), as measured by the number of deals with a disclosed value of at least $50 million, fell behind levels set in 2006 (169 deals) and 2007 (206 deals). Similarly, the number of deals announced during the fourth quarter of 2008 (11) is well behind the number of transactions announced during the fourth quarter of 2007 (71).
Total deal value reached $39 billion in 2008, shy of the $88 billion raised in 2007. In the fourth quarter, total deal value announcements totaled $3 billion, compared with $40 billion announced in the same quarter of 2007. In addition, average deal value dropped significantly in 2008, with deals averaging $275 million, far behind the averages in 2007 ($424 million) and 2006 ($545 million). The dramatic decline in deal value can be attributed to an overall slowdown in large deals during the past year, as only five large deals (disclosed deal value of at least $1 billion) were announced in 2008; 2006 was marked by 23 large deals announcements and 17 large deals were announced in 2007.
Financial buyers, who are typically involved in larger deals in the manufacturing sector, cut their investments during 2008, due to the turbulent credit markets and a tightened lending environment. Overall, financial investors participated in only 37 deals in 2008, significantly behind the pace set in 2007 (72 deals) and 2006 (58 deals). Strategic investors claimed ownership of 104 deals in 2008, which is also down from previous levels set in 2007 (134 deals) and 2006 (111 deals).
Chemicals
In the midst of a recession, M&A deal activity increased in the global chemicals industry in 2008, according to PwC's report, Chemical Compounds: Fourth-quarter 2008 Mergers & Acquisitions. A surprising 869 total deals were announced in 2008, surpassing deal activity announced in 2007 (853 deals) and 2006 (760). M&A activity remained healthy, despite the deteriorating economy, due to a large number of small and mid-sized transactions announced in the chemicals sector.
Despite the steady level of deal volume, transactions with a disclosed value of greater than $50 million were down in 2008 (83 deals), versus 2007 (124 deals). The third quarter PwC Chemical Compounds report suggested that year-end deal value could close at $64 billion, based on annualized year-to-date third-quarter Q3 data; however, the full year fell short at only $54 billion. In the fourth quarter, only 84 deal announcements had a disclosed value, amounting to $6 billion.
Large deals (with a disclosed value of at least $1 billion) accounted for $38 billion of the total $54 billion of announced deal value in 2008, similar to 2006 levels ($32 billion) but significantly below large deal levels in 2007 ($91 billion). Given the current state of the economy, certain large deals announced in 2008 may not ultimately come to fruition. Meanwhile, medium-sized deals (with a disclosed value of at least $500 million but less than $1 billion) dominated activity in the sector.
Consistent with previous quarters, Chemical Compounds found a decline in financial investor participation in global chemicals deals. Strategic investors accounted for the majority of deal value accumulated in 2008, a testament to their relative strength over financial entities in the current credit environment.
Transportation and Logistics (T&L)
The transportation and logistics industry faired well in 2008 in comparison to other industrial products sectors, according to the PwC's report, Intersections: Fourth-quarter 2008 Mergers and Acquisitions Analysis. The report reveals that activity held steady in the last portion of the year, with 43 announced deals (disclosed deal value of at least $50 million). Comparatively, deal activity in the sector slowed from an annual perspective, with 181 total deals in 2008 compared with 192 in 2007.
While the economic downturn made an obvious impact on deal volume for domestic T&L targets, non-U.S. entities fared well with 145 deals in 2008, exceeding activity announced during both 2006 (119 deals) and 2007 (138 deals). International M&A activity also impacted total deal value in 2008. According to Intersections, deals involving U.S. entities accounted for only one-third of the total deal value announced during the past three years. Of all of the deals announced during 2008 that involved U.S. targets and/or acquirers, only four out of 36 (9 percent) took place in the fourth quarter.
In part because of volatile market economics, large deal announcements (with disclosed value of at least $1 billion) have fluctuated during the last three years. In fact, the number of large deals announced in 2008 (21) exceeded that of 2007 (16) but struggled to reach those reported in 2006 (20). Competing bids and bids that are later withdrawn contribute to annual totals but often fluctuate greatly when M&A deals are finalized. Average deal values announced in 2008 are subject to final closure but currently exceed levels achieved in 2007, at $513 million and $421 million respectively.
Bidder confidence in U.S.-based companies during the past year has shaped the M&A environment for the T&L sector. The balance between financial and strategic investor involvement has remained relatively stable over the past three years, as strategic investors continue to hold a well-positioned lead over financial investors who lack access to necessary capital. The gap between the two groups did grow in the fourth quarter, and in all of 2008, as announcements facilitated by financial investors dropped to 30 percent. Consistent with 2006 and 2007 reports, shipping and logistics targets continue to dominate interest, with passenger ground entities coming in a close third.
Metals
M&A in the global metals industry suffered in 2008, amidst weakening demand and concerns over the global recession, according to PwC's Forging Ahead: Fourth-quarter 2008 Mergers and Acquisitions Analysis.
In 2008, a total of 133 deals, as measured by the number of deals with a disclosed value of at least $50 million, were announced, declining from 142 deals announced in 2007. In the fourth quarter, 24 transactions were announced for metals targets, a reduced pace of activity compared to the 109 deals announced during the first three quarters of 2008.
Forging Ahead reported that total deal value suffered in 2008, when only $77.8 billion worth of mergers and acquisitions were announced, compared with $298.1 billion in 2007 and $186.5 billion in 2006. The sharp decline in deal value correlates to the slowdown in large deal announcements in 2008. Last year, 18 deals with disclosed values between $500 million and $1 billion were announced, while 2007 had 31 such deals. Only two of the 18 large deals were announced in the fourth quarter of 2008, reflecting the deterioration in the credit and economic environment during the end of the year.
Consistent with previous years, the majority of investment in the global metals industry came from well-capitalized strategic investors, accounting for $59.8 billion (77 percent) of announced deal value in 2008. Meanwhile, financial buyers invested $17.9 billion (23 percent) in 2008, compared with the $20.5 billion (7 percent) that was invested by financial entities in 2007.
For more information and to access the reports, visit:
Assembling Value: Fourth Quarter 2008 Mergers & Acquisitions Analysis www.pwc.com/manufacturing.
Chemical Compounds: Fourth Quarter 2008 Mergers & Acquisitions Analysis www.pwc.com/chemicals.
Intersections: Fourth-quarter 2008 Mergers and Acquisitions Analysis www.pwc.com/transport.
Forging Ahead: Fourth-quarter 2008 Mergers and Acquisitions Analysis www.pwc.com/metals.
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