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M&A activity to stay quiet in ’13: PwC

Keywords: Tags  PwC, steel, aluminum, M&A, Sean Hoover, Anne Riley

NEW YORK — Merger and acquisition (M&A) activity slowed dramatically in the global metals and mining industry in 2012, and that trend is unlikely to change in 2013 as companies throughout the supply chain maintain a cautious outlook, according to a PricewaterhouseCoopers LLP (PwC) executive.

"From talking with our metals clients, and more specifically our steel clients, the biggest concern is the general economy. I think ... they’re cautiously optimistic about what 2013 has in store," Sean Hoover, metals leader for the company’s U.S. industrial products practice, told AMM.

In 2012, the metals sector was on track to experience a year-over-year decline of up to 50 percent in total M&A deal value, according to a report by New York-based PwC.

And according to Hoover, that hesitancy to close on major M&A opportunities likely will persist as the new year takes hold. "I can’t say we’ve seen any real change in M&A activity yet. I think the general trend is an uncertainty in 2013 around M&A activity," he said, noting that "the recession and the sovereign debt issues in Europe" and "the general kind of uncertainty in the economy domestically" are two main factors keeping would-be buyers at bay.

Hoover said most PwC metals clients in the United States—including major aluminum and steel companies—aren’t planning any mega-deals in 2013. "I think it’s hesitation all around," he said.

Nonetheless, most metals executives are keeping their eyes open because they could be encouraged to make a move if the right opportunity presents itself, Hoover said. "Talking to some of the executives, I think everyone is looking to be opportunistic. A lot of these metals companies are building up substantial cash balances. There are definitely companies that are financially in a better position to take advantage of an M&A opportunity, but the message we’re getting is, ‘No specific plans. We’ll be opportunistic if we can be—here and there—(and) we might be able to get some cheap assets if it makes some sense.’"

Deals that might attract even a cautious company’s eye are primarily vertical integration opportunities, "particularly steel manufacturers, given the commodity volatility we’ve experienced the last couple of years," Hoover said. "We’ve also heard about (companies) looking for opportunities to get access to new markets (and) add capacity where it makes sense, (but) I can’t say we’ve really heard a consistent theme other than there’s a lot of uncertainty and, ‘If the right assets come at the right price, we’d be opportunistic.’"

With most metals companies sitting out of M&A activity for the time being, more companies are honing in on research and development opportunities. "They’re taking this as an opportunity to focus on innovation," Hoover said, citing low-cost energy in particular as a hot topic on many metals companies’ minds. "It makes sense. If M&A activity is on the sidelines, you’ve got excess cash to deploy in a way that makes sense."

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