What is influencing M&A in 2018?

Image: Rio Tinto

Professional services firm Herbert Smith Freehills believes a renewed focus on exploration and stronger commodity prices will be key factors that impact merger and acquisition (M&A) activity in 2018.

Herbert Smith Freehills, in its annual Asia Pacific M&A review, reflected on 2017, which saw price growth in bulk commodities, leading to greater confidence in the marketplace.

Several new mines previously on care and maintenance were re-opened, the firm explained, with more expected to do the same in 2018, particularly in coal and base metals.

Herbert Smith Freehills expects the growth in confidence will likely be a catalyst for more signed and completed transactions. It predicts that a strong focus on exploration, in particular, will influence M&A in 2018.

“We expect an increased focus in the mining industry on growth through exploration, select brownfield development and re-opening of mothballed operations,” the review stated.

“In 2018, there will also be a larger pipeline of M&A activity as, in different forms, parties attempt to participate in higher commodity prices.”

Herbert Smith Freehills anticipates that bulk commodity prices will remain well above the levels seen in 2014–2015.

“We expect to see continued M&A activity in both thermal and metallurgical coal over the next 12 months, including completion of the divestments by a major mining house,” it stated.

“In addition, there is likely to be an increased focus on gold, copper, lithium and base metals assets.”

Herbert Smith Freehills also pointed out that there has been limited vertical activity in the sector in recent years.

“We predict that this may change in 2018 as manufacturers look to secure supply chains for raw materials in hot areas, such as inputs for batteries in the automotive sector,” the firm added.

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