MERGERS & AQUISITIONS
M&As in industrial production slow down
Issue Date - 01/04/2012
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Lack of funding has seen a slowdown in M&A activities in the industrial manufacturing industry, which is a key for the world to achieve a better recovery from the crisis. Nevertheless, a better than expected performance in Q4 2011 and anticipations that if not good, the first half of 2012 will not be worse than 2011, has generated some hope. But there is no doubt that a lot of issues need to be resolved before that.
Dependency on spin offs increases
Despite a slight increase in the number and total value of the transactions, global industrial manufacturing activity in Q4 2011 remained low. The strong deal activity growth seen in 2010 and the first half of 2011 diminished in the second half of 2011, and the total number, value, and average value of deals declined to mid-2009 levels. In addition, it appears that 2011 has put forward an increased trend of spin-offs and divestitures, which have become a prevalent strategy as many manufacturers face decreases in demand. With the continued goal of making operations leaner and more efficient, many companies have decided to close facilities, and to spin off and divest operations in markets with lower current and forecasted growth. This trend is likely to continue in 2012.
Local deals driving the show
As a report by PricewaterhouseCoopers suggested, local transactions gained momentum in the fourth quarter of 2011 and became the primary driver of activities. The United States, a major contributor to deals activity this quarter, had eight local deals out of an involved total of 12. Similarly, China also saw an increased proportion of local deals this quarter; out of a total of eight transactions, six were local. Moreover, tight credit, political uncertainty, and concerns over a possible European recession are likely to continue to pressure the volume and size of transactions in the near term. If 2012 turns out to be as bad as or worse than 2011, large and mega-deals are likely to remain a rarity allowing small and local deals to be the prime driver.
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