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 November 10 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."