OREANDA-NEWS. September 14, 2010. The merger and acquisition (M&A) deal activity in the global metals industry in the second quarter of 2010 shows further improvement, as measured by deal value, from the uptick seen in the first quarter of 2010, according to the PricewaterhouseCoopers report, Forging ahead, reported the press-centre of PricewaterhouseCoopers.

A notable trend in the metals sector during the second quarter of 2010 was the migration of M&A activity away from the small and middle segments of the market toward larger transactions. This movement was exemplified by five announced “mega deals,” categorized as deals with a disclosed value of at least USD1 billion, which equals the total number of announcements for all of 2009 and more than doubles the two mega deals announced in Q1 2010.

This increase in mega deal activity helped bolster the USD16.8 billion value of deals announced in the second quarter, which represents the highest total since the second quarter of 2009. This trend represents reason for optimism, as potential acquirers continue to focus less on internal cost and liquidity initiatives associated with the recent downturn and instead, show signs of improved confidence and engagement in larger strategic acquisitions.

While deal value rose in Q2, the 20 deals announced remained on par with the 22 deals announced in Q1 2010, and total 2010 deal activity accounted for over two percent of M&A activity across all industries. These trends indicate that the M&A activity may be more closely associated with flucuations in commodity prices rather than general economic recovery, as is evidenced by the fact that metals M&A contribution has mostly increased since the early- to mid-2000’s, mirroring a generally strong commodity price environment.

Michael Knoll, partner, head of M&A lead advisory / corporate finance, PricewaterhouseCoopers in Russia, noted:

“It does seem clear that we are entering a period in which more buyers are looking to augment organic growth opportunities through a variety of M&A strategies beyond the backward integration that has driven recent quarterly totals.

“We believe that this trend in activity is a positive indication for future deal flow, contributing to our relatively optimistic outlook for metals M&A activity over the second half of 2010”.

The regional distribution of deals for the second quarter indicates a relatively high level of participation by both acquirers and targets in the Asia and Oceania and South America regions.  The former has been driven by Chinese entities acting as consolidators of the domestic metals sector, while the latter has been driven by Brazilian entities, several of which have been targeted in efforts to purchase mining assets.

John Campbell, metals and mining leader, PricewaterhouseCoopers in Russia, commented:
“In keeping with our previous expectations, steel and iron ore deals remain the primary driver of sector activity.  Interest in steel and iron ore is likely to continue and may be supported by the industry movement toward quarterly iron ore pricing.

“Such pricing could enhance the desire of Chinese companies to mitigate supply risks by engaging in mining deals”.