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PERTH (miningweekly.com) – The total value of global merger and acquisition (M&A) activity in the first quarter of 2015 dropped by 18%, to $5.9-billion, compared with the same quarter last year, advisory firm EY reported this week.
The volume of global M&A activity nearly halved during the same period, with only 79 deals completed.
Compared with the fourth quarter of 2014, both the volume and value of M&A transactions declined by about one-third, EY reported.
In its latest analysis, EY noted that while divestments of noncore and distressed assets, particularly in the coal and gold sectors, remained key drivers of deal activity, acquisitions by private financial investors accounted for 28% of deal volume in the first quarter of 2014.
“While private capital investors continue to show patience, distress in the sector is likely to be the key driver of activity. Companies in the iron-ore and coal sectors face the most immediate financial challenge, but there is a wider need for restructuring across the sector and we may see quality assets coming to the market in order to release much needed capital among multicommodity producers,” EY global mining & metals transactions leader Lee Downham said.
Downham noted that midtier consolidation to unlock synergies and increase scale to lower costs was emerging in the gold sector, particularly in North America and Mexico.
“Interestingly, buyer competition was identified as a key challenge to deal strategies by more than a third, or 35%, of the mining and metals sector respondents in EY’s latest biannual Global Capital Confidence Barometer, and we expect to see that play out in some commodities earlier than others.”
Furthermore, Downham pointed out that increased volatility in commodities and currencies was the main factor concerning mining and metals respondents in the barometer, identified by 39% of respondents as the greatest economic risk to their business over the next 6 to 12 months.
The barometer found the proportion of mining and metals companies focused on growth had fallen from 29% compared with 44% a year ago, reflecting the downturn in commodity prices. Despite this, some 49% of respondents expected to actively pursue an acquisition in the next 12 months while the same number expect the M&A market to improve – albeit from decade-low levels in 2014.
EY’s Global Capital Confidence Barometer is a biannual survey of more than 1 600 executives in 54 countries, including 63 respondents from the global mining and metals sector.