A wave of deal-making is expected in the forestry sector this year as companies divest assets and re-position their businesses for long-term survival, according to a PwC report issued Monday.
The report found that North American deals rose 47%, from 45 deals in 2009 to 66 deals last year.
All told, last year’s deals were worth US$3.2 billion compared with US$1 billion in 2009.
Still, that’s nowhere near the height of the market in 2005, which saw US$30 billion in acquisitions.
“Deal activity in North America revived after a virtual collapse the previous year,” said Frederic Bouchard, PwC’s national leader of transaction forest, paper and packing.
“However, distress lay behind many of the 2010 deals as many Canadian and U.S. pulp and paper producers had to seek bankruptcy protection in recent years amidst declining demand.”
For example, the largest deal last year was made when AbitibiBowater (TSX:ABH) sold US$940 million worth of land and assets before emerging from creditor protection.
Bouchard said companies that have managed to avoid bankruptcy in recent years have been busy “rationalizing” their operations with “closures, smaller divestments and repositioning.”
EACOM Timber (TSX-V:ETR) is a good example. B.C. forestry veteran Rick Doman founded the company last year when he bought several Domtar (TSX:UFS) sawmills for approximately $80 million.
PwC believes further consolidation, security of wood supply and new growth markets will continue to drive deal making in 2011.
Check out BIV’s Black Edition focusing on profitability for more about how B.C.’s largest forestry firms survived the Great Recession (see “A time for replanting” – issue 1117; March 22).