Industrial M&A activity slow

Posted on 11 May 2010 by The Manufacturer

Industrial manufacturing merger and acquisition activity was weaker than expected in Q1 2010, according to accountants PricewaterhouseCoopers’ latest report.

The report – Assembling value: First quarter 2010 global industrial manufacturing mergers and acquisitions analysis – says a total deal value of $1.9 billion Q1 2010 compares with $2.0 billion and $9.6 billion in the first and fourth quarters of 2009, respectively.

In the first quarter of 2010, there were only 11 announced deals with total transaction values greater than $50 million, representing a decline from the 16 deals announced in Q1 2009 and 31 deals in Q4 2009.

However, average deal value in the first quarter of 2010 increased on a year-on-year basis to $200 million from $100 million in Q1 2009.

“Surprisingly, on a year-over-year basis, the level of deal activity during the first quarter of 2010 was weaker than the level experienced during the same period last year,” said PricewaterhouseCoopers partner Neil Hampson. “Smaller deals (valued at $50 million or less) and transactions with undisclosed values dominated overall activity, which is consistent with historical trends. The level of middle-market, large and mega-deal activity continued to be constrained, although the near-term outlook for a turnaround is favourable.”

Transactions involving both U.S. targets and buyers dominated the statistics. Seventy-nine per cent of total deal value during the first quarter was attributable to US-affiliated activity, compared with an average of 50 percent over the last four years.

Only two transactions originated in the UK and Eurozone region but Hampson said an upturn in UK manufacturing since the beginning of the year may mean this will increase.

“Increased exports in the UK have led manufacturing to its fastest growth in over 15 years this week, the biggest month on month increase since September 1994. Recovery across the sector in the UK is looking up,” he said.

“We believe fundamentals are ripe for a recovery in the deal environment. In many global markets, credit is loosening, equity markets are advancing, and economic growth rates are stabilising. The economic growth factor is particularly noteworthy since mergers and acquisitions are fundamentally correlated to GDP growth. Although many macro-factors have improved, others continue to show weakness, such as pervasively high unemployment and weak housing fundamentals. Nevertheless, we believe buyers are increasingly optimistic in their near-term economic outlooks.”

According to the report, manufacturing companies must consider how two years of economic contraction have altered the balance of supply and demand within the value chain as well as how it has heightened importance of due diligence. Healthcare, climate change, commodity prices, pension plan structures, changing tax laws, company culture and the role of human resources must be factored into today’s due diligence process, it maintains.

Click here for a copy of the report.