Despite increasing optimism in the economy, only 24% of global mining and metals companies are focused on mergers and acquisitions (M&A) in the next six months, according to an Ernst & Young (E&Y) report released this morning.
E&Y’s eighth annual Capital Confidence Barometer report shows that 57% of companies feel the economy is on an upswing – a significant increase compared with October (21%).
“Confidence in the global economy is up but deals in the sector – and the appetite to do them – are down as weaker commodity prices, cost inflation and labour unrest take their toll,” said Bruce Sprague, E&Y’s Canadian mining and metals leader.
“These forces have driven companies to take drastic measures to reduce their operating costs, including staff reductions and mine closures.”
The study found that total deal value was down 45% year-over-year to US$16.3 billion in the first quarter of 2013. Deal volume also fell, with a 35% drop to 168 deals in the same period. Sprague explained, however, that growth remains a priority for 44% of mining and metals companies.
“Companies are looking at how they can achieve growth from a stronger operating base,” he said. “They’re opting for lower-risk organic growth, optimizing capital allocation and strategic divestments rather than M&A.
“For those where M&A is still a priority, expect to see smaller, bolt-on acquisitions.”
The study states that 91% of deals in the upcoming six months are anticipated to be valued at below US$500 million – an increase from October’s figure of 74% – as companies are being careful not to negatively affect their credit ratings or balance sheets.
