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PERTH (miningweekly.com) – Australia’s merger and acquisition (M&A) activity declined during the first quarter of the year, advisory firm Ernst & Young (EY) reported on Thursday, with deal value and volumes down 15% and 79% respectively.
Only 45 M&A transactions were concluded during the first quarter, with a combined value of $511.59-million.
EY’s Asia-Pacific mining and metals transaction leader, Paul Murphy, pointed out that Australia reflected the global trend, with only 135 deals completed globally in the sector during the first quarter, totalling $6.7-billion.
This is down 31% and 67%, respectively, on the same quarter in 2013, though deal volume was on par with the fourth quarter of 2013.
“We are either at or near the bottom of the M&A cycle but it will take the catalyst of a large deal, perhaps by a non-traditional backed player, before we will see momentum come back into the market,” Murphy said.
He noted that the recently announced Baosteel Resources/Aurizon takeover bid for ASX-listed Aquila Resources was an indicator that the deal pipeline was building and also highlighted how non-traditional players such as Aurizon could look to participate in resources transactions.
Baosteel and Aurizon launched a A$1.4-billion bid for Aquila, offering shareholders A$3.40 a share in cash. If Aquila shareholders fully accepted the takeover offer, Aurizon would end up with a 15% shareholding in Aquila, while Baosteel would own the balance.
Steel has been the biggest winner in terms of value, with some $4-billion worth of transactions completed during the first quarter, with gold running second at $728-million and coal third at $624-million.
In terms of volume, gold was the clear winner with 46 deals completed, while the coal sector completed 12 deals and the uranium sector and the silver/lead/zinc sectors completed eight deals each.
Meanwhile, Murphy pointed out that the number of completed deals during the first quarter of the year did not accurately reflect the market, as the rate of announced and yet-to-be-announced deals had increased.
“There remains a backdrop of caution; however, the mood is much more positive. We are beginning to see that translate into confidence to do deals, as reflected by the large pipeline of announced acquisitions.”
This transition was also reflected in EY’s Capital Confidence Barometer results, which indicated that nearly two-thirds, or 60%, of mining and metals sector respondents expected global deal volumes in the sector to improve in the next 12 months.
Additionally, 53% of mining and metals companies have a pipeline of two to three deals for the next 12 months.
“Numerous key indicators, as reflected in the Capital Confidence Barometer tell us that confidence and appetite is coming back, but this has not yet translated into completed transactions,” Murphy said.
He added that deal volumes in the sector would also continue to build slowly through the rest of 2014 and 2015, driven by portfolio optimisation among larger miners, financial buyers, and consolidation amongst juniors and midtier companies.
The war chest raised by private capital funds – estimated to be a minimum of $10-billion and thought to be as high as $20-billion – was beginning to be deployed, though these funds and other financial investors are likely to face more competition as corporate confidence and access to capital improves, Murphy said.
The Capital Confidence Barometer is based on a global survey of more than 1 600 executives in 54 countries, including 128 in the mining and metals sector.