M & A growth15 Nov 2018 21:21
Shift in global mining dealmaking sentiment could signal M&A rebound - November 7, 2018<br /><br />In the third quarter of 2018, mining and metals companies continued to tread carefully in their approach to dealmaking and capital allocation. Geopolitical instability, including ongoing trade turbulence, has compounded the sector�s focus on optionality across existing projects and a reluctance to execute higher risk capital investments. But this approach will eventually have to shift more towards an investment-led a strategy across the industry, with the potential for acquisitive growth.<br /><br />Global mining and metals deal appetite remained subdued in 3Q18 amid ongoing geopolitical uncertainty, according to the latest EY Mergers, acquisitions and capital raising in mining and metals. However, the 19th EY Global Capital Confidence Barometer (CCB) indicates that the sector could be poised for a rebound, with 58% of global mining executives intending to pursue mergers and acquisitions (M&A) in the next 12 months, compared with 46% across all sectors.<br /><br />While Q3 deal value rose by 25% quarter-on-quarter to US$16.8b, and volume was up 15% (115 deals), caution prevailed as mining companies continued to focus on balance sheet stability and returning cash to shareholders. This was reflected by a decline in capital raised, which fell by 22% during 3Q18 to US$50.2b � down from US$60.7b in Q2. But as markets continue to stabilize, there is a sense that Barrick�s announcement in Q3 that it will acquire Randgold for US$6.5b will spark some momentum in the M&A markets.<br /><br />Dealmaking has remained sluggish, and we have already seen some companies looking toward measured growth through joint ventures and strategic partnership. For example, there has been a notable acceleration in battery metals deals into the second half of the year.<br /><br />The latest CCB further indicates that caution could now be lifting, and the New Year may well see the sector enter a new phase, marked by acquisitive growth and bolder dealmaking. Seventy-four percent of CCB respondents say that they expect the M&A market to improve in the next twelve months, up from 53% last year. And 52% say that their M&A pipeline will increase in the next 12 months, compared with 34% a year ago. Sixty percent also expect to see an increase in the number of completed deals, almost double last year�s response rate (34%).<br /><br />Notably, nearly a third of CCB respondents (27%) expect to see an increase in cross-sector M&A driven by technology and digital.<br /><br />For more insights: Follow @ldownhamEY and EY_MiningMetals for the latest developments on Twitter.<br /><br />The data includes completed deals only and is primarily sourced from ThomsonONE. For more information, please visit ey.com/miningmetals.
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