E&Y Says 1Q Global Mining, Metals M&A Down 20%
First Published Monday, 7th May 2012 11:45 pm - © 2012 Dow Jones
SYDNEY -- The global value of mergers and acquisitions in mining and metals fell sharply in the first quarter compared with the year-earlier period, with volumes shrinking by a third amid continued volatility across world financial markets, Ernst & Young said in a quarterly mining-transactions report Tuesday.
Global M&A in the mining sector fell to $25.31 billion in the first quarter of 2012, from $31.57 billion in the same period of 2011, as the volume of deals dropped to 195 from 297, it said.
Still, there were a total of 10 megadeals of $1 billion or more recorded--twice as many as in the first quarter of 2011. The total value of deals was also only 10% lower when compared with the final quarter of 2011, while volumes were virtually on par, Ernst & Young said.
"This year is emerging as a year of extremes, with a greater number of megadeals in the first quarter of 2012 compared to the first quarter of 2011, but with a lower average deal size due to the smaller size of the majority of deals," said Lee Downham, Ernst & Young's global mining-and-metals transaction leader.
"However, there is a strong deal pipeline--not least of which the proposed merger of Glencore and Xstrata--which indicates a sustained appetite to do deals," he added.
Downham said relatively lower valuations for companies, given continued concern over the global economic outlook across the financial markets, has sparked interest from some corners of the investment community. Expectations of robust long-term commodity demand and strong company balance sheets should drive activity this year, as miners look to increase penetration in growth markets or consolidate market share, he said.
According to the report, the average M&A deal size during the quarter was $130 million, down from $134 million in the year-earlier period.
Canada was the highest-ranked in terms of activity, with junior explorers and mineral properties heavily targeted, Ernst & Young said. The second most targeted country was China, although the majority of Chinese deals were domestic transactions, spurred by consolidation activity.
In the initial public offerings, or IPOs, market, the number of listings during the quarter totaled 17, around half the 31 recorded in the first quarter of 2011.
"This obviously reflects the ongoing difficult conditions in equity markets, a trend seen globally across all sectors, not just mining and metals," said Downham.
The two largest listings--Xiwang Special Steel and Kinetic Mines & Energy--were hosted by the Hong Kong Stock Exchange and accounted for 83% of the overall IPO market's value during the quarter.