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Home > Blogs > Anthony Harrington > Manufacturing gets acquisitive—At last!

Manufacturing gets acquisitive—At last!

Finance Blogger: Anthony Harrington Anthony Harrington

On November 10, PricewaterhouseCoopers, one of the big four accountancy firms, announced that the third quarter of 2009 saw the industrial manufacturing sector experiencing an increased level of merger and acquisitions activity.

PwC’s report focused exclusively on deals over $50 million in value. It found that although both deal values (the overall size of each deal) and deal volumes (number of deals done) were on the increase, unsurprisingly, the mega, billion dollar and upwards deals are still off the table. There is plenty of evidence that even where banks are prepared to form a “club” to allow a bigger deal to take wing, their appetite for contributing anything much above $25 million each is severely restricted. It is a similar story with syndication (i.e. where banks come in after a deal is done in a secondary play, each taking a piece of the action). Syndications are even harder to get off the ground since it means one bank has to put itself in the firing line for a much larger sum before it can sell down its debt chunk to other players.

What PwC found was that, while there were no deals in the sector of $1 billion or more, there were several deals around the world of $500 million or more. The biggest deal PwC cites was the all-Brazil deal which saw Satipel Industrial acquiring Duratex SA for $963 million (close to the magic $1 billion mark, but not quite there…). With banks not taking kindly to the ambitions of private equity houses, the traditional instigators of the over $1 billion deal size, the majority of deals being done at the moment are by trade players.

The absence of highly leveraged bids from the large private equity houses has given scope and freedom to corporates with good balance sheets and access to funds to buy up competitors at reasonable prices. PwC points out that now is a great time for companies to make strategic acquisitions that either strengthen their product range or give them access to new geographic markets. Other reasons driving acquisitions include “building density in current markets, enhancing supply chains or filling gaps in product lines”, it says.

All in all, globally, there were 29 deals in the industrial manufacturing sector over $50 million in the third quarter of 2009. This compares to just 10 deals done in the second quarter of 2009. The total deal value, unsurprisingly, given the increase in numbers of deals done, moved from $1.8 billion in Q2 2009, to $6.7 billion in Q3.

Activity in the chemicals and metals sectors around the world presented a mixed picture in Q3, with volumes falling in the chemical sector and the total deal value falling in the metals sector despite an overall increase in deals done. Acquirers in the Asia and Oceania regions were responsible for the lion’s share of deals in the metals sector, accounting for 75% of deal volume and 935 of deal value, according to PwC.

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Tags: manufacturing , Mergers and Acquisitions
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