Third Quarter Industrial Products M&A Activity Posts Strong Year-Over-Year Gains According to PwC US

Majority of subsectors see deal volume gains

Mega deals activity increases average deal value

Cross-border transactions moderate reflecting global uncertainty

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Oct 23, 2014, 09:00 ET

NEW YORK, Oct. 23, 2014 /PRNewswire/ -- Merger and acquisition (M&A) deal activity increased 25 percent year-over- year across the global industrial products (IP) sector during the third quarter of 2014, according to PwC US. Four of six IP subsectors generated deal volume gains, with the total number of mega deals (transactions worth more than $1 billion) rising as well, resulting in an increase in average transaction value compared to the same period last year. With sustained momentum through the first nine months of the year, 2014 is on pace to be the strongest year for M&A since the financial crisis. PwC's IP practice examined deal activity in the third quarter of 2014 across six sectors: aerospace & defense (A&D), chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.

Across the entire IP industry, there were 235 transactions (worth $50 million or more), totaling $107.1 billion in the third quarter of 2014, compared to 188 deals and $79 billion in total value during the third quarter of 2013. On a sequential basis, overall third quarter deal activity was down modestly compared to the 241 deals recorded in second quarter of 2014, while total value was down from the $190 billion recorded in the second quarter. The first nine months of 2014 have already surpassed all of 2013's deal value, recording $366.9 billion compared to $269.2 billion respectively. Deal volume is expected to top last year's number as well.

"Industrial products M&A activity has been strong so far in 2014 and we continue to witness an uptick in transaction volume compared to last year as companies seek to bolster growth, strengthen technology resources and add talent in an increasingly competitive environment," said Robert McCutcheon, U.S. industrial products leader, PwC. "While recent global geopolitical and macroeconomic concerns have moderated overall transaction activity -- particularly cross-border deals, compared to the previous quarter -- we expect the M&A market to remain healthy in the final months of the year. Well-positioned companies are also taking aggressive actions to ignite organic growth by embracing technologies that are disrupting the manufacturing industry and its supply chain, to solidify long term prospects and improve processes."

Four of the six subsectors posted year-over-year increases in deal volume during the third quarter of 2014, while three of the six subsectors in the study posted year-over-year increases in M&A value. Engineering & construction was the most active sector during the third quarter, with 66 deals totaling $27.8 billion, up substantially from 43 deals valued at $13.9 billion in last year's comparable period. The industrial manufacturing industry also remained active with 55 deals valued at $27 billion during the third quarter, up from 43 deals valued at $17.5 billion in last year's third quarter. In addition, the chemicals M&A market posted robust gains with 40 transactions valued at $30.2 billion during the third quarter compared to 27 deals valued at $5.7 billion last year.

Deal sizes decreased slightly from the prior quarter as smaller transactions picked up steam. However, the industry remains on track to post one the strongest years for total deal value since the onset of the economic crisis, due to robust activity in the first half of the year. Overall, average deal value was $460 million during the third quarter compared to $790 million in the previous quarter and $420 million in the third quarter of 2013.

There were 25 mega deals worth $62 billion across the IP industry during the third quarter, compared to 14 mega deals worth $23 billion in the third quarter of 2013 and 33 deals worth $157 billion in the second quarter of 2014. The chemicals sector led the group with nine mega deals during the third quarter, followed by six mega deals in the engineering & construction sector and five mega deals in the industrial manufacturing sector.

Local deals continued to drive the bulk of M&A activity in the third quarter of 2014. Overall IP cross-border deals decreased to 27 percent of total deal activity during the third quarter of 2014, compared to 35 percent in last year's third quarter and 36 percent in the second quarter of 2014. "In line with PwC's recent Manufacturing Barometer report, we are seeing a more cautious approach to pursuing transactions overseas given the increase in global economic uncertainty and political unrest. Meanwhile, North America remains attractive due to consistent economic growth, accommodative monetary policy and a less volatile environment, as reflected in the strengthening dollar," McCutcheon added.

Asia and Oceania remained the most active regions for M&A activity in the third quarter, recording 130 deals worth more than $50 million with a total value of $37 billion. North America followed with 79 deals valued at $54 billion, while Europe generated 57 deals totaling $26 billion in the third quarter.

Deals involving equity increased during the third quarter of 2014 to 31 percent, compared to 13 percent in the third quarter of 2013 and 21 percent in the second quarter of 2014. "Given recent peak market valuations achieved during the third quarter, we believe management teams moved to take advantage of their public equity to lock in deals at an opportune time. With the return of market volatility in the current quarter, we believe deals will likely revert back to debt and cash sources for financing, particularly given strong balance sheets," McCutcheon said.

PwC's IP M&A analysis is a quarterly report of announced global transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters.

For more information on PwC's Deals practice, visit www.pwc.com/us/deals.

About PwC's Industrial Products practice
PwC's Industrial Products (IP) practice provides financial, operational, and strategic services to global organizations across the aerospace & defense (A&D), business services, chemicals, engineering & construction (E&C), forest, paper, & packaging (FPP), industrial manufacturing, metals, and transportation & logistics (T&L) industries. For more information please visit: www.pwc.com/us/en/industrial-products

About PwC US
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms, which has firms in 157 countries with more than 195,000 people. We're committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.

© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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SOURCE PwC US