Muted transaction numbers in the global mining and metals sector are masking the strongest pipeline of deals seen for a long time, according to EY Asia-Pacific Mining & Metals Transaction Leader Paul Murphy.
EY quarterly M&A (Merger and Acquisitions) analysis and latest Capital Confidence Barometer: mining & metals sector shows 135 deals in the sector during the first quarter of 2014 totaling US $6.7 billion. This is down 31% and 67% respectively on the same quarter in 2013, though deal volume was on par with the fourth quarter of 2013.
Australia followed the global lead with deal value and volume subdued, with 45 deals worth US $511.59 million, down 15% and 79% respectively on the first quarter of 2013.
“We are either at or near the bottom of the M&A cycle but it will take the catalyst of a large deal, perhaps by a non-traditional backed player, before we will see momentum come back into the market,” says Murphy.
“The recently announced Baosteel Resources/Aurizon takeover bid for Aquila Resources is an indicator of the deal pipeline that is building and also highlights how non-traditional players such as Aurizon may look to participate in resources transactions.”
The Capital Confidence Barometer is based on a global survey of more than 1,600 executives in 54 countries, including 128 in the mining and metals sector.
“The Q1 completed deal numbers don’t really reflect what we are seeing in the market as the rate of announced and yet-to-be-announced deals has increased. There remains a backdrop of caution however the mood is much more positive. We are beginning to see that translate into confidence to do deals, as reflected by the large pipeline of announced acquisitions,” says Murphy.
This is reflected in the Barometer results, with nearly two thirds (60%) of mining and metals sector respondents expecting global deal volumes in the sector to improve in the next 12 months. Additionally, 53% of mining and metals companies have a pipeline of 2-3 deals for the next 12 months.
“Numerous key indicators, as reflected in the Capital Confidence Barometer tell us that confidence and appetite is coming back, but this has not yet translated into completed transactions,” he says.
Murphy says deal volumes in the sector will continue to build slowly through the rest of 2014 and 2015, driven by portfolio optimization among larger miners, financial buyers, and consolidation among juniors and mid-tier companies.
The war chest raised by private capital funds, estimated to be a minimum of US $10 billion and thought to be as high as US $20 billion, is beginning to be deployed, though these funds and other financial investors are likely to face more competition as corporate confidence and access to capital improves.
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