New York, USA — MININGREVIEW.COM — 16 April 2009 – The pace of consolidation in the global metals industry has slowed down significantly in most parts of the world as companies revisit their business strategies and investment plans.
According to a new report, Consolidation wave: Global metals outlook, by Deloitte Touche Tohmatsu’s Global Manufacturing Industry Group, the volume of merger and acquisition (M&A) deals in the short-term is expected to be significantly less and smaller in size.
“There are still deals happening, but potential acquirers are trying to gauge when the industry hits the bottom before they get back in,” explains group global metals M&A leader Dan Schweller. “In the near-term, we will likely see less focus on new deals and more focus on achieving synergies from past deals.”
The numbers reveal a slow start for the year. According to Merger-market, there were just 14 completed global metals deals worldwide in the first quarter of 2009 compared with 47 deals a year earlier. Despite the 678 deals valued at a total of US$206 billion (almost R2 000-billion) in the last 4 years, the global metals industry remains a relatively fragmented market.
“Companies with strong cash positions stand to win,” says Schweller. “Some may take advantage of the opportunity to position their business for growth by acquiring weaker competitors, customers, or suppliers at lower valuations. With the lower valuations of some assets in today’s economy, locking in a low-cost supply may benefit them potentially through the next business cycle.”
“Within the next few years, M&A activity should return to normal,” Schweller added, “but it is not likely during the next year or so.”
The Deloitte report indicates that regardless of timing, two significant enabling actions are required for M&A recovery in the global metals industry. First, service centres and other customers will need to have sufficient trade financing capacity, and to forecast demand to make meaningful purchases. And second, recovery will depend on how steel companies manage production levels to respond to demand and the impact on pricing.
“It will be interesting to see if steel companies ramp up production too quickly and overproduce in an attempt to capture as much volume as possible, or if they gradually bring back production as demand dictates, adding upward pressure on pricing,” Schweller concluded.