Record M&A volumes tipped

THIS will be a year of record merger and acquisition volumes and values, according to a PricewaterhouseCoopers report.
Record M&A volumes tipped Record M&A volumes tipped Record M&A volumes tipped Record M&A volumes tipped Record M&A volumes tipped


Noel Dyson

In its Global Mining 2011 Deals Review & 2012 Outlook, the accounting firm pins this prediction on the fact the mining sector is sitting on more than $100 billion in cash. This, coupled with pent up demand for projects, rising costs and declining reserves means miners will seek fresh targets to build scale.

PwC energy, utilities and mining leader Jock O’Callaghan said growth markets – which included Africa, Latin America and parts of Asia – were increasingly the force to be reckoned with in global mining.

In addition to housing most of the world’s population, these markets host about 75% of the world’s known reserves. This includes the bulk of the world’s crude iron ore, gold and copper reserves.

PwC’s predictions for 2012 include:

  • “Non-miners” such as sovereign wealth funds, private equity and pension funds will re-evaluate their approach to the resource sector.
  • Western buyers, many flush with cash, will need to find ways to make the growth market deals “work”
  • Africa will continue to emerge as one of the most important markets. Strong resource potential and an increasingly investor-friendly climate are key drivers highlighting the dark continent as a popular mining region.
  • A “flurry” of gold acquisitions is unlikely, even though the value of gold equities is lagging the escalating gold price.

“The shifting centre of gravity from the west to the east will increasingly challenge the traditional fundamentals of mining M&A and compel western entities, especially boards and shareholders to realign their protocols around balancing risk and reward,” O’Callaghan said.

“Western ‘uber miners’ will need to retool if they expect to compete successfully with the might of state-backed sovereign wealth funds, private equity and other similar entities.

“These new mining moguls will be characterised by their deep pockets, long investment time frames and their expertise in emerging markets.”

Looking back at 2011, China is the clear leader in the growth markets, claiming almost half that year’s deal activity in those areas.

Compared with the 2006 peak, Chinese buying volumes are up 40% and 300% in terms of market value.

However, overall, Australia, the US and Canada dominated global deal making, accounting for 53% of annual acquisition values up from 46% in 2010.

Australians were the most acquisitive, accounting for 22% of market share value – up 3% from the year before – followed by the Americans.

On the sell side Australia was ranked number two, with 20% of market share. The US came first.

“Australia would have taken out top ranking in both the buy and sell side of global deal making if several major, and probably anomalous deals, had not propelled the US into the top sales destination,” O’Callaghan said.

In 2011 there were more than 2600 deals worth $149 billion. Volumes were close to historical highs and values were up 33% on 2010.

This article first appeared in ILN's sister publication