M&A Activity in the Global Metals Industry Focuses on North America

PricewaterhouseCoopers reports that deals in the global metals industry in North America soared to record levels in 2007, indicating that the credit crisis in the U.S. has not hindered industry growth.

A report titled “Forging Ahead: Mergers and Acquisitions Activity in the Global Metals Industry,” reveals that 115 deals, totaling $77 billion in value, took place during 2007 in North America. This activity accounts for 53 percent of the total deal value in the global metals industry during 2007 and nearly matches the entire global metals industry deal value for 2006, which was $86 billion.

Most of the deals took place in the steel industry, with North American companies serving as targets for three of the top six deals in the steel sector. The rest of the world, however, saw a shift away from steel to aluminum, the report states.

"Industry consolidation and the declining value of the dollar will continue to make the U.S. an attractive region for steelmakers from emerging and industrialized markets alike," Douglas Dean, U.S. metals leader, PricewaterhouseCoopers, says. Dean adds that steel consumption does not appear likely to taper off soon and that consumption is likely to outpace production in North America in the coming few years.

Several steelmakers based in emerging economies acquired North American producers during 2007, as a way of moving up the value chain and also to obtain greater access to the U.S. market. In return, some North American producers bought smaller competitors as a means for reducing overcapacity and expanding their product offerings.

North America's aluminum market was particularly valuable in 2007, with 18 deals totaling $46.7 billion, according to the report. In contrast, the steel sector accounted for a great number of deals at 71, but accumulated less total deal value than the aluminum sector, at $30 billion. In addition, 26 deals closed in the base metals industry, accounting for $300 million in North American deals last year.

While deal-making in the global metals industry soared to unprecedented levels during 2007, the sector was not completely unaffected by the credit crisis. Historically, financial buyers account for a significant portion of the total deal value of transactions (20 percent in 2006); however, they only accounted for 4 percent in 2007. According to the report, the fallout from the credit crunch has been particularly evident in the steel sector, where financial buyers only accounted for $3.9 billion of deal value in 2007 compared to $14.2 billion in 2006.

"With increased uncertainty in the financial environment, financial buyers are acting more cautiously than ever before proposing deals in the metals industry," Jim Forbes, global metals leader, PricewaterhouseCoopers, says. "With continued strong metal prices and demand, corporate buyers will help drive and support the booming global M&A metals market over the next few years."

The PricewaterhouseCooper report references several specific deals and companies that were active in transactions within the global metals industry over the past two years. It also includes the perspectives of 26 CEOs from the metals industry, as reported by PricewaterhouseCoopers 11th Annual Global CEO Survey. Additional  information and access to the full report, is available at www.pwc.com/metals.