The merger and acquisition (M&A) deal activity in the global industrial manufacturing (IM) industry showed marked improvement from the first quarter of 2010, with an increase in both deal volume and value in the second quarter of 2010, according to the PricewaterhouseCoopers LLP report, “Assembling value: Second-quarter 2010 global industrial manufacturing mergers and acquisitions analysis”.
In the second quarter of 2010, there were 33 announced deals worth $50 million or more, which is more than double the 14 deals announced in Q1 2010. And, deal value totaled $8.5 billion in Q2, more than triple the $2.3 billion in value announced in Q1 2010. Additionally, both deal volume and value also saw an increase in a year-over-year basis, up from 12 deals with a total value of $3.2 billion in Q2 2009.
Driving this activity, as global economic trends continue to improve, are smaller deals and transactions with undisclosed values, which stays on par with historical trends. However, middle-market, large and mega-deal activity continues to increase and the near-term outlook points to sustained growth. Showcasing this trend are the two mega-deals (transactions of $1 billion or more) in Q2 2010, compared to Q1 2010 when no mega-deals were announced and the entirety of 2009 when only one mega-deal was announced.
“Looking ahead, we expect the deal environment will continue to improve as credit access eases, equity markets advance and economic growth rates stabilize. However, although many factors have improved, others remain weak, such as stubbornly high levels of unemployment and weak residential construction activity,” said Barry Misthal, U.S. industrial manufacturing leader, PricewaterhouseCoopers. “Nevertheless, we believe that buyers are becoming increasingly optimistic in their near-term economic outlooks.”
Transactions including U.S. targets and/or buyers continued to drive deal activity during Q2 2010 with 36 percent of the total transactions over $50 million involving a U.S. entity. This compares with an average of 61 percent over the past 4 years (2006-2009). Additionally, the level of activity affiliated with BRIC (Brazil, Russia, India, China) countries grew with China serving as the key driver. This contributed to targets located in Asia and Oceana taking the lead in deal activity, as 45 percent of all transactions valued at $50 million or more were announced in the region.
Capturing Synergies to Maximize Deal Value
The second quarter Assembling value report takes a closer look at the importance of the merger integration planning process, especially in today’s recovering economy. Industrial manufacturing (IM) companies must balance a desire to quickly reach the finish line with a need to systematically leverage synergies and contain costs.
Because the IM industry was hit hard by the recession, opportunities to acquire undervalued assets abound. However, organizations focused on outpacing their competitors through acquisitions can lose sight of the deal's objectives during the often difficult integration phase.
Closing deals is tough, but capturing deal value is even tougher, according to the report. In some ways, deciding whether to go forward with a merger or acquisition is the easy part, and the act of “owning” after the transaction is complete is the real challenge. In the end, the market will reward or punish shareholders of the combined company depending on how well its management succeeds at achieving stated deal objectives. For this reason, it is imperative that synergies are realized, deal value is captured, and the resulting performance is communicated to all those with a stake in the outcome.
For information on “Assembling value” and to access the full report, including the special section on capturing synergies to maximize deal value, visit the industrial manufacturing industry Web site at www.pwc.com/us/industrialproducts.
About PricewaterhouseCoopers Industrial Manufacturing Practice
PricewaterhouseCoopers' Industrial Manufacturing practice comprises a global network of industry professionals strategically located in more than 30 countries around the world. The practice brings experience, international industry best practices, and a wealth of specialized resources to help solve business issues.