The latest survey of global mining and metals companies conducted by Ernst & Young's Vancouver office found that only 24% of mining and metals companies planned to pursue mergers and acquisitions in 2013, despite the fact that 57% of mining companies view the economy as improving, up from 21% in October 2012.
E&Y's eighth semi-annual Capital Confidence Barometer study also revealed that the total value of deals fell 45% year-over-year to US$16.3 billion, reflective of a 35% volume drop in the first six months of 2013. Despite not planning any deals, 44% of respondents said growth still tops their agendas.
Looking forward to the last half of this year, 91% of the mining industry deals are expected to be worth less than US$500 million, a rise from 74% in October 2012. Evidently companies are being careful not to jeopardize their balance sheets or credit ratings.
"Companies are looking at how they can achieve growth from a stronger operating base. They're opting for lower risk organic growth, optimizing capital allocation and strategic divestments rather than M&A," said Bruce Sprague, E&Y's Canadian mining and metals leader. "For those where M&A is still a priority, expect to see smaller, bolt-on acquisitions."
The rising valuation gap and the growth in divestment activity are creating a buyer's market for non-traditional investors. More and more private equity and sovereign wealth funds are entering the market, securing supply and seeking financial return on undervalued assets.
For more information, please visit EY.com/ca.