Global mining deal value hits five-year high
London, 19 February 2018
- Deal value up 15% in 2017, while legacy of caution hampered deal volume
- Portfolio management is key deal driver amid improving market conditions
- New technologies, including electric vehicles, to accelerate deal activity in 2018
Global mining and metals deal value rose 15% year-on-year to US$51b in 2017 – the highest value of completed deals since 2013 – according to the latest EY quarterly report Mergers, acquisitions and capital raising in the mining and metals sector. But with financial distress across the market still a recent memory, global deal volume fell 6% year-on-year despite significant restructuring in the steel and coal sectors and strong domestic activity in China.
Lee Downham, EY Global Mining & Metals Transactions Leader, says:
“In 2017, mining and metals companies came to an inflection point as financial distress abated and the sector began to cautiously move toward a more strategic mindset. We expect to see more deals in 2018 as investment-led strategies begin to dominate, but the return of transformational consolidation across the industry is unlikely as capital discipline is maintained.”
Improving market conditions underpinned a number of large transactions with a strategic focus in 2017, as well as continued domestic consolidation across the Chinese coal and steel industries. Portfolio realignment was also a key driver of mergers and acquisitions (M&A), as diversified producers looked to divest assets no longer considered core to the business and to free up capital.
Financial investors also made a return in 2017. While industry participants completed almost three quarters of deals by volume (70%), financial investors were responsible for nearly a quarter (22.4%) of total deal value (US$9.5b).
Coal and steel were the primary drivers of deal value in 2017, with coal acquisitions up 156% on 2016 to US$8.5b, and steel transactions doubling in value to US$13.3b. Meanwhile, gold deals declined, falling 34% in value to US$7.3b.
Last year also saw the global shift toward the development of electric vehicles (EVs) as a catalyst for numerous players to invest in the future supply of commodities used in battery technology. Notably, Switzerland-based Pala Investments launched a US$150m fund to invest in metals used in EV battery technology.
Downham says: “Looking ahead, continued shareholder pressure to reduce exposure to fossil fuels could lead to further divestments or spin-offs across the listed producers. Management teams are increasingly casting an eye over minerals required for new battery technologies, accelerated by the expected growth in electric vehicles. As such, deals in lithium, copper and cobalt are expected to feature highly in 2018.”
North American participants represented 32% of global deal value (US$16.2b) as either a target or acquirer, totaling 118 deals. But China continued to be the main hub of activity in 2017, leading deals by value as both acquirer (US$18.7b, representing 36.6%) and target (US$13.6b, representing 26.6%). The majority of China deals were domestic steel and aluminum mergers, aimed at industry consolidation to drive efficiency across the metals sector.
Conversely, China was responsible for just under a third (32%) of global capital raised across the industry, down 40% on last year. In 2017, global aggregate capital raised increased by just 3% year-on-year as companies continued to control expenditure on growth projects and sustain capital. Meanwhile, renewed appetite for equity among investors saw aggregate proceeds from IPOs reaching a six-year high – increasing to US$2.8b.
Downham says: “Despite improved access to capital in 2017, the focus has largely been on meeting short-term needs, such as working capital and refinancing requirements. A shift away from debt reduction and toward creating sustainable shareholder value should now trigger stronger demand for growth financing. With a strong commodity outlook, we expect mining companies to return to acquisitive growth in the year ahead.”
- Ends -
Notes to Editors
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
How EY’s Global Mining & Metals Network can help your business
The sector is returning to growth, but mining and metals (M&M) companies face a transformed competitive and operating landscape. The need to improve shareholder returns will drive bold strategies to accelerate productivity, improve margins and better allocate capital to achieve long-term growth. Digital innovation will be a key enabler but the industry must overcome a poor track record of technology implementations. If M&M companies are to survive and thrive in a new energy world, they must embrace digital to optimize productivity from market to mine.
EY takes a whole-of-value-chain approach to support each client to help seize the potential of digital to fast-track productivity, balance portfolios and set a clear road map for their new energy future.
For more information, please visit ey.com/miningmetals.
About the data
All mergers and acquisitions data, and capital raising data was extracted from Thomson ONE and analyzed by EY. Only completed deals are included in the data and analysis.