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2014 to Finish Strong with Mergers & Acquisitions

Oct. 24, 2014
A majority of subsectors will see deal volume gains, with mega deals increasing average deal value.

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 billon 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. 

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,” McCutcheon added.  “Meanwhile, North America remains attractive due to consistent economic growth, accommodative monetary policy and a less volatile environment, as reflected in the strengthening dollar."

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.

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