Despite the low activity, the report from PwC’s Industrial Products practice sees encouraging signs ahead. Factors such as good cash reserves, favourable valuation levels and weak organic growth prospects present incentives for executives to look to M&A for expansion going forward.
Engineering growth is PWC US’s quarterly analysis of the global engineering and construction industry. It identified 30 deals in the sector totalling US$11.8bn (£7.4bn) in the third quarter, compared to 52 deals worth US$22.7bn in the third quarter of 2011.
The construction segment continued to lead in deal volume in the third quarter of 2012 with eight deals, a trend established in the first quarter of 2012 driven by favourable valuations of high-growth areas such as infrastructure and energy in countries such as China, Italy and South Korea.
PwC found that financial investors pulled back from the engineering and construction industry in the third quarter of 2012 due to lower levels of fund-raising. This allowed strategic investors to take the lead in deal activity, representing 70% of deals.
Geographically, Asia and Oceania continued to lead in M&A activity, with 13 deals worth US$2.9bn, supported by strong activity in China. The USA was the second most active acquire country in terms of deal volume and the greatest contributor to deal value with nine deals totalling US$6.4bn.
“The continuing global economic slowdown, sovereign crisis in Europe, slowing of growth in emerging markets and sluggish US recovery have resulted in a ‘wait and see’ attitude among potential acquirers – a hesitation that was evident across all ranges of deals,” said H. Kent Goetjen, US engineering and construction leader with PwC. “Although 2012 so far has seen little enthusiasm for deal making in the E&C sector, we remain cautiously optimistic. Solid fundamentals, good cash reserves, and weak organic growth prospects create incentives for executives to look at M&A for expansion.”
For a copy of Engineering Growth, visit: www.pwc.com/us/industrialproducts