Perspectives: Thoughts on deal activity in the first half of 2008
Welcome to the second quarter of 2008 edition of our Forging ahead analysis of mergers and acquisition activity in the metals industry. The pace of deal activity, as measured by the number of transactions announced for metals targets, increased this quarter. The pace for the quarter also exceeded the same period in 2006 and was about in-line with the same period in 2007. Notwithstanding this robust pace in the number of deals announced, the total value of deals announced has slowed, even when excluding the $144 billion proposed acquisition of Rio Tinto by BHP Billiton from the 2007 deal value total. We attribute this slowdown to several factors, including the availability of fewer targets at attractive prices, a weakened cost-savings rationale within a strong pricing environment, and a greater focus on integration of acquisitions after a busy transaction period prior to 2008.
Our analysis this quarter reflects several noteworthy trends. First, while there were no agreements with a disclosed value of more than $10 billion announced during the first half of 2008, large deal activity (defined to include announced transactions with a disclosed value of at least $1 billion) remained strong, with 10 large transactions announced during the first half of 2008. Second, strategic investors continue to play a dominant role in bids for metals targets, with minimal financial investment announced during the first half of 2008. Third, interest in US targets remains strong with an increasing number of cross-border deals for US targets, a trend we had previously forecasted. Finally, valuation of announced metals deals has increased as strategic investors take advantage of strong balance sheets and ample liquidity.
We continue to expect the more fragmented global metal categories outside of aluminum to account for a higher proportion of future metals deal value, although aluminum fragmentation in nations such as China could lead to more aluminum transactions in these markets. We also expect strategic investors to continue playing a principal role in transactions, leveraging strong financial positions gained from a sustained period of high commodity prices.
We hope that you enjoy this latest quarterly edition of Forging Ahead. If you have any questions about our findings, please contact us.
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