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Don’t expect many M&As in 2013, says GE Capital exec

Keywords: Tags  GE Capital, Greg Eck, metals and mining, steel industry, mergers and acquisition, M&A, consolidation, Chris Prentice

NEW YORK — The metals industry is ripe for consolidation, but 2013 will not likely be the "breakthrough" year for merger and acquisition activity, according to an executive in GE Capital’s corporate finance division.

Companies are looking to invest capital and expand, but sellers expect prices that are too high for today’s metal markets, said Greg Eck, managing director of the Norwalk, Conn.-based company’s metals and mining unit. The failure of businesses’ valuations to reach pre-recession levels is one of the major headwinds facing merger-and-acquisition activity among metal companies.

"There is a definite gap between the expectations of the (sellers) and the expectations of the buyers as it relates to the value of business," Eck told AMM.

The problem is pervasive throughout industry, although medium-sized and small businesses in particular have not yet adjusted to the reality of today’s valuations. It will take an acceptance of lower valuations to bring more consolidation to the metals industry, Eck said, and he expects to see more of that in 2014 rather than in the coming year.

Companies have made significant investments in their businesses in the past year, but they have been focused on efficiencies rather than horizontal or downstream expansion, he said, noting that steel producers have made moves to integrate upstream to lower their costs of raw materials, including natural gas.

Furthermore, some companies divested noncore assets during the down cycle, leaving them more streamlined. "Everybody is sitting with a lot of cash on the balance sheet, a very streamlined business, feeling good about where they are sitting now," Eck said. "Now it’s, ‘Let’s see demand start to recover.’"

The capital markets are poised for reinvestment in industries such as steel, but companies need more macroeconomic certainty and stronger demand before they start investing in expansions, Eck said. That will require the United States to resolve its fiscal-cliff-related problems and Europe to address the crisis of confidence facing banks there.

However, it remains to be seen when—and under what circumstances—those problems will be resolved. "We’ve certainly improved a little bit, but we’ve got an awfully long way to go until the businesses we deal with start really opening up their purse strings," Eck said.

"Unfortunately, uncertainty continues to be the new certainty," he added.

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