22/2/11 – M&A Deal Activity in Industrial Manufacturing Sector Shows Continued Momentum
22 February 2011
Merger and acquisition (M&A) deal activity in the global industrial manufacturing industry showed striking increases in deal volume and value in the fourth quarter of 2010, both year-over-year and sequentially from the quarter third , according to a new Pricewaterhouse Cooper, PwC US report, Assembling value: Fourth-quarter 2010 global industrial manufacturing mergers and acquisitions analysis.
Fourth quarter activity comprised more than 40 percent of the volume in 2010 and almost 45 percent of the year’s value, with 52 deals adding up to US $22.6 billion for the quarter and 129 deals totalling $51.1 billion for full-year 2010. Year-over-year, full-year deal volume exceeded 2009 by 37 percent and deal value grew 125 percent.
Highest for three years
The fourth quarter’s deal volume and deal value both tallied the highest quarterly totals of the past three years. One driver of the increase in deal value was the continued growth of mega-deal activity, classified as transactions of $1 billion or more, with four deals totaling $9.6 billion in Q4. This brought the aggregate value of the 10 mega-deals in 2010 up to $24 billion, almost seven times greater than that of 2009, when there was just a single mega-deal. While transactions including U.S. targets and/or buyers declined as a proportion of total deals in the fourth quarter, two of Q4’s mega-deals involved U.S. targets. This may be a sign that although many investors are likely concerned about the relatively slow growth in the U.S., there continues to be an interest in gaining access to its large market and the technologies held by U.S. players.
"Though high levels of unemployment, concern over weak economic growth, and European debt woes may continue to constrain investment, we believe buyers remain optimistic in their near-term economic outlooks," said Barry Misthal, U.S. industrial manufacturing leader for PwC. "As we look at 2011, several indicators, including strong balance sheets, reduced costs, and margin growth lead us to conclude that deal activity will continue to increase in the coming year."
Despite the significant proportion of mega-deal targets located in North America, targets based in the UK and Eurozone region led as the drivers of deal activity in the fourth quarter of 2010, with 35 percent of all transactions valued at $50 million or more announced in the region. Additionally, Q4 activity affiliated with Brazil, Russia, India and China (BRIC) grew in comparison with the third quarter, with eight deals announced for BRIC targets. North America remained a strong region for overall deal activity as well, with 13 transactions announced in the region in Q4 versus 41 in all of 2010.
Cross-border deals represented 50 percent of announced deals worth $50 million or more in Q4 2010, up 72 percent from Q4 2009. Historically, local-market transactions have been an integral part of the M&A story, although recent trends show a lower concentration of local-market transactions taking place versus historical levels. Local-market activity has continued to decrease despite the greater political, socioeconomic, and currency risks that cross-border transactions generally carry.
"As economies further improve, we expect cross-border deal activity to continue to rise as perceived rewards begin to outweigh perceived risks," added Misthal. "The need of corporations to augment slow organic growth by entering new, faster-growing geographies and repositioning their product portfolios for increased growth will also aid this uptick in cross-border activity."