Industrial Manufacturing Deal Activity Showed Improvement, Chemicals and Metals Segments Showed Mixed Results, in Third Quarter 2009, Finds PricewaterhouseCoopers

NEW YORK, Nov. 10 /PRNewswire/ -- The pace of mergers and acquisitions (M&A) in the industrial manufacturing sector experienced increases in both deal volume and value during the third quarter of 2009 compared to the prior quarter, according to a series of quarterly M&A reports released today by PricewaterhouseCoopers LLP (PwC). The metals and chemicals sectors showed mixed results in Q3 as the chemicals sector experienced a decrease in deal volume while the metals sector showed an increase in deal volume but a decline in deal value. Deal value in the industrial manufacturing segment increased significantly by 272 percent in the third quarter of 2009.

Strategic buyers continued to act as the main investors in the majority of deals in all three segments of the industrial products industry as financial investors remained on the sidelines because of continued tight credit markets and a lack of liquidity. For the most part, average deal size decreased from last year's levels, as the number of large deals declined due to a combination of difficult economic and credit conditions and the need for companies to concentrate on their own operations. Smaller transactions are expected to continue to provide the bulk of deal activity until acquirers gain more certainty over the direction of the economy and the credit markets.

The third quarter of 2009 continued the trend seen in the first half of the year, where targets located in the Asia and Oceania region accounted for a significant portion of the deal volume and value in the chemicals, industrial manufacturing and metals sectors. As acquirers, the Asia and Oceania region dominated the metals sector, making up 75 percent of deal volume and 93 percent of deal value through the third quarter of 2009. This region also accounted for more than one-third of all deal value and volume in Q3 in both the chemical and industrial manufacturing sectors.

"The outlook on deal activity and deal value for the rest of 2009 is following along the same path we saw in the first half of the year, with positive hints emerging from the industrial manufacturing and metals segments," said Dean Simone, U.S. industrial products leader at PricewaterhouseCoopers. "Lack of financial investors, tight capital markets and the practically nonexistent large-deal activity suggests we haven't turned the corner just yet in the industrial products sector. We are seeing some signs of hope in the Asia and Oceania region, but, by and large, we remain off the pace of 2007 and 2008 activity."

The third quarter editions of PricewaterhouseCoopers' M&A reports take a deeper look at carbon legislation and carbon monetization in the United States to explore the impact climate change policy could have on companies within the industrial products industry.

According to the reports, companies in the industrial products industry need to pay close attention to the economic consequences of proposed climate change legislation when planning and executing deal strategy. A cap & trade system will require companies to measure and account for greenhouse gas emissions and credits. These new requirements will necessitate companies to learn how to inventory carbon footprints, identify what needs to disclosed and be able to distinguish risk from opportunity.

"Carbon legislation, if implemented, will definitely impact the way companies in the industrial products industry do business going forward," added Simone. "Metals, chemicals and industrial manufacturing companies all need to take into consideration the impact carbon monetization will have on their business and what they need to be doing now to mitigate risk as much as possible or create opportunity."

Details on each subsector M&A report follow:

Chemicals
Economic conditions continue to impact deal activity in the chemicals sector, as volume of deals declined in the third quarter of 2009, according to a new PricewaterhouseCoopers LLP report, Chemical compounds: Third-quarter 2009 global chemicals industry mergers and acquisitions analysis. However, deal value increased in the third quarter to $8 billion, doubling the prior quarter's total of $4 billion. Much of this increase can be attributed to one large deal announced in the third quarter that accounted for $2.5 billion of the total.

The slow-moving economy continued to hinder 2009 deal activity compared with previous years. While there were 156 total deals announced, deal activity in the third quarter was slightly lower than the previous two quarters, putting it on pace to finish the year more than 20 percent below 2008 levels. Large deals with transaction values greater than $1 billion were down significantly in Q3 relative to prior years, and, as a result, total deal value for the full year 2009 is tracking to be more than 40 percent lower than 2008.

In the third quarter of 2009, 10 of the 17 deals announced with deal values greater than $50 million were within the Asia Pacific region. These deals were spread across several countries with China the most active country by volume. In North America, deal activity was low with only three deals announced with transaction values greater than $50 million.

Strategic investors continue to be the driving force for chemicals targets in 2009 M&A activity, accounting for more than 80 percent of the deal value through the third quarter of 2009. Given the current economic conditions, it is not surprising that the deal value from financial investors is down from 2007 and 2008 levels.

Industrial Manufacturing
Mergers and acquisitions in the global industrial manufacturing industry showed some indications of improvement during the third quarter of 2009, according to a new PricewaterhouseCoopers LLP report, Assembling value: Third-quarter 2009 global industrial manufacturing mergers and acquisitions analysis.

Deal activity in the third quarter showed a marked improvement, both in terms of deal volume and value, increasing from 10 deals with a disclosed value of $1.8 billion in the second quarter to 29 deals with a disclosed value of $6.7 billion in the third quarter. Large deal activity (defined as deals with a disclosed value of at least $1 billion) remained nonexistent, as no deals were announced during the period.

Average deal value declined consistently throughout 2008 and during the first half of 2009. This trend saw a reversal in the third quarter of 2009 as the average deal value increased to $237 million, compared to $153 million in first half of 2009, driven primarily by the increase in total deal values in Q3 2009.

Financial investors remained absent in deals. Strategic buyers declined slightly in Q3 (66 percent versus 67 percent year-to-date), but have been the primary force supporting larger middle-market deal activity in 2009.

Metals
The pace of deal activity as measured by the number of announced deals in the global metals industry has shown only a slight uptick in 2009, while deal sizes have remained mostly anemic in the present capital-constrained environment, according to a new PricewaterhouseCoopers LLP report, Forging ahead: Third-quarter 2009 global metals industry mergers and acquisitions analysis.

In the third quarter of 2009, there were 20 deals announced worth more than $50 million, representing a small increase compared to the 18 deals announced in the first quarter and 16 deals announced in the second quarter. However, the overall pace of deal activity as measured by deal value has slowed throughout the course of 2009. In Q3, $3.5 billion in deals were announced, compared to the $74.5 billion in the first half of 2009. The high deal value from the first half of the year can be partly attributed to one very large transaction for $58 billion.

Strategic investors continue to dominate the deal landscape for the global metals industry, accounting for 98 percent of deal value announced during the first three quarters of 2009. On a relative basis, these investors will likely continue to account for a large majority of announced deal value due to constraints on credit and strategic rationale for building scale and consolidating the sector.

For more information and to access the reports, visit: www.pwc.com/us/industrialproducts

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