Some of the report's key findings:
- Global industrial manufacturing M&A value increased 70 percent in 2nd quarter 2011
- U.S.-affiliated deals contributed 41 percent of total volume and 66 percent of total value
- Strategic investors dominated deal activity and 100 percent of mega deals
- Global domestic transactions led deal activity across all regions
In the first six months of 2011, both deal volume and value were up with 86 deals (each worth more than $50 million) and a total value of $35.9 billion--an 83 percent increase in volume and 197 percent increase in value when compared to the 47 deals worth $12.1 billion in the first six months of 2010.
For deals worth $50 million or more, the industrial machinery category was the primary driver of deal activity with 61 percent and one of the three mega deals in the second quarter of 2011. Despite contributing the remaining two mega deals, the number of rubber and plastics products deals decreased during the second quarter of 2011 with four deals worth $3.53 billion, compared with four deals worth $0.65 billion in the second quarter of 2010.
Meanwhile, the number of fabricated metal products deals increased to 20 percent during the second quarter of 2011 from 12 percent in the same period of 2010.
The pace of global domestic market transactions has already exceeded all of 2010, which represented approximately 58 percent of deals worth more than $50 million, compared to nearly 72 percent during the second quarter of 2011 and nearly 61 percent in the first half of 2011. According to PwC, companies are pursuing more local consolidations as growth tools, as both the emerging and some developed markets have already taken steps to restrain unsustainable growth in order to control inflationary pressures.
Barry Misthal, PwC's global industrial manufacturing leader, said the factors that drove and will continue to drive deal activity in the industrial manufacturing industry are "the maturity of the industry, a fairly high market concentration and favorable deal valuations." In the near term, he added, "continuous global economic growth, fueled by emerging markets, greater capital availability, and more cash on balance sheets should continue to aid strong deal activity in the industrial manufacturing sector."
A recent survey PwC conducted with executives at large, multinational U.S. industrial manufacturing companies found that while a number of global factors contributed to the uncertainty about the world economy of late, U.S.-based industrial manufacturers continued to grow international sales last quarter and remain bullish on overseas revenues. In spite of the recent market volatility, PwC believes that the outlook for deals in the space is "encouraging."
Global domestic deals across all regions led deal activity with North America contributing 13 deals and both Asia and Oceania and Europe contributing 10 deals. Interestingly, Asia and Oceania's stake in total transactions decreased both in terms of volume and value during second quarter 2011 with 30 percent or 14 deals worth more than $50 million, compared to 41 percent or 11 out of 27 deals during second quarter 2010.
"North America and the U.K. and Eurozone are expected to continue to make significant contributions to deal activity as companies within those regions strive to generate growth and greater returns," continued Misthal. "At the same time, due to greater expected growth opportunities and stronger economic recovery, companies in Asian markets, especially in China, are likely to seek consolidation in their own local markets."
BRIC countries also experienced strong deal activity in second quarter 2011 with 10 deals worth $50 million or more, and China contributing eight deals worth $2.25 billion. According to PwC, due to the great amount of state-owned assets that are going public or restructuring to leverage public capital in China, transactions in the country are likely to increase as investors seek opportunities for greater returns. India and Russia also present great opportunities for new market entrance to foreign companies.
A special section in the report talks about how to mitigate corruption-related risks during M&A, and includes factors companies need to consider when pursuing deals out of their home markets.
"Companies need to be aware that incidents of corruption and bribery are of significant concern when doing business in emerging markets such as India, Brazil, Mexico, Russia, Indonesia and Turkey," said Misthal. "The rate of bribery and corruption in the industrial manufacturing industry has increased sharply in recent years-and with the uptick in deal activities, companies need to mitigate the related risks."