As the mining investment boom fades the inbound merger and acquisition activity attached to the sector has also taken a hit.
According to the latest Intralinks deal flow data the sector copping the biggest hit in the M&A market is metals and mining.
“Most sectors are contributing to the increase in activity, with the notable exception of the materials sector. Materials has been hit by a sharp slowdown in metals and mining transactions, as the commodity price super cycle which was fueled by rapid Chinese industrialisation comes to an end,” Intralinks vice president of strategy Philip Whitchelo said.
The value of commodity deals dropped off the cliff in 2014, with year-on-year value declining 46%.
This trend is strong in Australia where in 2009 metals and mining deals as a proportion of all inbound and domestic mergers and acquisitions peaked at 33%. By 2014 that had slumped to 18%.
Whitchelo said even though the volumes of deals done in Australia fell 19% last year companies were embarking on international buying sprees and outbound deal volume increased by the same percentage.
“What’s quite interesting is the resilience of the Australian M&A market,” he said.
“While the inbound has dropped, there’s been quite a big increase in outbound deals – so that’s Australian companies buying assets abroad.
“Domestic Australian M&A deal volumes in 2014 also increased by 7% as sectors such as healthcare, consumer products and services, media and entertainment and high technology compensated for the metals and mining slowdown.
“There are lots of concerns about Australia in terms of the economy but it doesn’t seem to be having an impact on early-stage activity. Australia is over contributing to that growth.”
With dropping oil prices he said the valuations of smaller, higher cost producers would’ve dropped off considerably and they could present as an interesting buying opportunity for bigger companies.
“I think we’re also going to see activity in the energy and power sector given the oil price has come off in the past six months,” he said.
The Intralinks deal flow predictor data is forecasting continued strength in global M&A activity for the first half of this year.
The Q2 data for 2015 is forecasting changes in the volume of global M&A deals expected to be announced in the next six months. In particular activity in the Asia Pacific is varied with a 17% year-on-year increase and a 6% quarter-on-quarter decrease.
The Intralinks DFP tracks early-stage M&A deals which are in the preparation stage or have reached due diligence. This typically happens six months before they’re announced.
Across the APAC region only Japan noted a decline year-on-year. Strong levels of deal activity have been recorded across Southeast Asia, Australia and South Korea.
“Based on the early-stage M&A activity that we are seeing, we predict announced deal volumes in APAC to remain healthy over the next six months, with growth at or above our global prediction of 9 to 15 per cent year-on-year,” Whitchelo said.
“The volume of global announced M&A in 1H 2015 will be significantly above that of 1H 2014.
“The mid-point of our forecast is for 12% YoY, with a range of between 9% and 15%.
“We believe that the number of mega deals (those over $5 billion) announced in 2015 will be fewer than in 2014, while mid-market M&A will remain strong and financial sponsor activity will increase.”
Here’s the regional snapshot.
Globally the data shows a 1% quarter-on-quarter increase and a 12% year-on-year increase in early stage M&A activity. Europe, the Middle East, Africa and North America all posted solid results.
“2014 saw a return to significant growth for global M&A markets, for the first time since 2010, both in terms of deal volume and value,” Whitchelo said. “Global announced deal volumes in 2014 have increased by 12.5% compared to 2013. This is higher than our prediction made six months ago that there would be a 7% to 11% YoY increase in 2014.”
But what’s staggering is globally, deal value in 2014 jumped 45% with the number of announced deals over $5 billion doubling to 80 last year.
The total value of announced deals in 2014 was $3.5 trillion — the highest level since 2007.