Metals & mining M&A to revive in H2 2020 after severe decline in first half

Companies with strong balance sheets and access to capital could drive a gradual pick-up in mergers and acquisitions (M&A) activity in the metals and mining sector in the months ahead, following a significant reduction in deal numbers due to the Covid-19 pandemic, according to consultancy firm PwC.

But uncertainties created by the continuing pandemic and a possible recession continued to weigh heavily on investors, which have already been facing challenges in 2020 from persistently softer demand, lower manufacturing levels, and changes in the commercial landscape resulting from trade negotiations and related tariffs, PwC said.

“The significant contraction in demand [in the first half of 2020], along with myriad other challenges caused by the pandemic, resulted in decreased deal value, volume and average deal size compared with the first half of 2019,” PwC said.

“This [is] also highlighted by the decrease in deal volume from the first quarter to the second quarter of 2020,” it added.

The total value of the deals in metals and mining in the first half of the year was $5.9 billion, a decrease of 81% year-on-year, while deal volume in the same period fell by 12% to 271 deals, from 309 deals in the first half of 2019.

According to PwC, prospective corporate and private equity buyers alike have been forced to reevaluate their planned and in-progress deals due to the pandemic, with many adopting a wait-and-see approach.

“Faced with the immediate challenge of the pandemic, businesses focused on protecting worker safety, solving operational challenges and bolstering liquidity, often leaving M&A strategies and activity on the back-burner,” PwC said.

But the consultancy noted that, in the second half of 2020 and beyond, corporations and private equity firms may refocus their M&A efforts in an attempt to seek value through acquisitions, or to streamline core operations through divestitures.

“As experienced in previous downturns, proactive and timely M&A [activity] may help entities to leapfrog their competition, take share and accelerate their recovery, because acquiring early in a downturn can lead to returns in excess of [those achieved by] peer groups,” PwC said.

“Similarly,” it added, “active and timely portfolio management and divestitures can help to free-up cash and capital, both to reinforce business and to allow future investment.”

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