China Leads Increased Interest in Q2 in Industrial Manufacturing M&A Activity
Deal activity picked up slightly in the second quarter of 2013, recording 36 transactions worth more than $50 million for a total deal value of $12.6 billion, compared to 30 deals worth $9.7 billion in the previous quarter this year. While advanced nation acquirers accounted for 69 percent of total deals worth more than $50 million, emerging and developing nations also witnessed a substantial increase in deal activity, representing 31 percent of total deals, more than double from the first quarter of 2013. Of the emerging and developing nations, Asia and Oceania represented the most active region totaling 18 transactions worth more than $50 million in the second quarter of 2013, with China recording 12 deals.
“Given the continued uncertainty, acquirers have shifted their focus from cross border to local deals, which can involve less risk due to greater potential for synergies,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “China seems likely to drive more of the overall industrial manufacturing deal activity as the country’s importance to the global economy grows. In fact, 2013 is shaping up to have the highest number of China-involved deals of any annual period over the past 10 years.”
While strategic investors continued to drive deal activity in the second quarter, representing 64 percent of total deals, financial investors remained more active than in previous years, accounting for 36 percent of total deal volume. There were also fewer Eurozone deals with a reduction in local acquirers, however financial investors outside the union increasingly looked to the Eurozone for new acquisitions. Despite the decline in overall deal volume, financial deals are on pace to easily exceed the level announced in 2012, according to PwC.
“While larger U.S. announcements were down from last year, the proportion of U.S. deal volume remains in line with the norms of the past 10 years,” continued Bono. “U.S. announcements continue to be more oriented toward energy targets due to the relatively high expected growth in this end market. It appears that the increase in shale oil and gas production domestically is having a positive effect on energy costs and is now impacting strategic planning among some industrial manufacturers.”
The industrial machinery subsector continued to lead deal activity in the second quarter, representing 29 percent of total deals, followed closely by the fabricated metals products subsector with 26 percent. This is largely a result of Chinese transactions announced so far this year, which mainly involved strategic investors looking to acquire industrial machinery targets as well as financial investment in fabricated metal products companies. This horizontal consolidation within Asia, as well as the U.S., led to an overall increase in the share of global M&A attributable to the fabricated metals products targets. However, PwC notes that the largest deals continue to fall in the industrial machinery industry where financial buyers also remain active.
“As we saw with our Q2 Manufacturing Barometer, plans for M&A activity over the next 12 months remain muted as optimism regarding the domestic economy increased, while worldwide economic sentiment remains restrained,” said Bono. “Industrial manufacturing M&A will likely continue to face headwinds in the form of economic uncertainty and valuations which are high as measured by value/sales ratios. As a result, we believe companies will remain cautious going into the second half of 2013, limiting the potential upside to M&A.”
For more information on PwC’s Deals practice, visit www.pwc.com/us/deals.