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Pace of mergers set to pick up says PwC

7 Feb 12 Shareholders’ pressure to spend cash and generate greater returns are likely to spur mergers and acquisitions in the second half of the year, says the latest report from PwC Industrial Products.

Kent Goetjen
Kent Goetjen

Market turmoil and political, economic and social uncertainty restrained engineering and construction growth and stymied the number and value of mergers and acquisitions deals in the fourth quarter of 2011, according to the analysis for the fourth quarter of 2011. Most deals in the engineering and construction sector were for small, bolt-on acquisitions although two ‘mega deals’ were recorded, says the global mergers and acquisitions report for the quarter.

Deal activity in the next two quarters is likely to remain restrained by the European recession, turbulent financial markets, and sluggish global recovery, according to Kent Goetjen, US engineering and construction industry leader at PwC. While many companies might employ a “wait and see” strategy in the first half of 2012, shareholders’ pressure to deploy cash abundances and generate greater returns is likely to spur activity in the second half of the year.

Non-US-affiliated deals took the lead in the quarter as a result of sluggish US recovery, reductions in federal and municipal spending and political gridlock. Asia and Oceania led deal activity with China as a major player.

As a result, the majority of the activity was from small, bolt-on acquisitions, which dropped the average deal value to low levels last seen in 2009. In engineering and construction, the deals for small, bolt-on acquisitions dropped the average deal value to 2009 low levels of US$354m. Divestitures, spin-offs, and carve-outs became a major trend in deal activity as companies aimed at exiting unprofitable markets and adjusting product mixes to reflect changing customer demands.

With the combination of a sluggish U.S. recovery, reductions in federal and municipal spending and political gridlock, non-U.S. affiliated deals took the lead in deal activity during the fourth quarter of 2011. Asia and Oceania led deal activity with China as a major player as a result of the Chinese government’s infrastructure and energy efficiency activities. 

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Another result of the global uncertainty was the dominance of local deals and retraction of financial investors from the M&A marketplace, said PwC. Strategic investors sought mostly domestic acquisitions as a source for synergies in areas such as urbanisation, infrastructure, energy and energy efficiency. Consolidation also provided companies in mature markets with the opportunity to reduce the intense level of competition.

There were two mega-deals with a value exceeding $1 billion in the engineering and construction sectors in the quarter: the deal between Martin Marietta and Vulcan and the deal between Etex and Lafarge.

From a regional perspective, despite a slowdown in growth projections, Asia and Oceania led deal activity. Again, China was a major player in that region as a result of the Chinese government’s infrastructure and energy-efficiency activities.

Mature markets such as the United States and Europe are likely to continue to be the subject of further consolidation and divestitures as companies deal with decreased demand, slim growth prospects and intense competition. said PwC On the other hand, Brazil, Russia, India and China and other emerging nations, particularly in the Asia and Oceania region, are likely to see a surge in deal activity. Countries such as Russia and India might also realise an increase in construction growth and a greater level of investor interest.

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