Mergers and acquisitions double in first half of 2017

Mergers and acquisitions (M&A) in the mining sector have nearly doubled during the first half of 2017 compared to the same period in 2016, according figures from EY.

The value of M&A transactions increased 71 per cent year on year (y/y) to US$14.8b in the second quarter of 2017, a 13 per cent rise from the previous quarter.

EY’s 2017 trends also noted a drop in the share of Chinese deals – from nearly 70 per cent of deal value in the first half of 2017 to 15 per cent (US$2.1 billion) in the second quarter – indicating the geographical diversity of deals.

While capital was mainly used for refinancing and working capital, some major deals are showing shifting perspectives from debt reduction to strategic transactions.

“The return to growth and reduced industry leverage is shifting the drivers of M&A from divestment of non-core assets to strategic transactions,” EY said.

For the rest of 2017, EY expects to see more M&A activity in the coal industry.

“The value of such deals are likely to dominate in the coming months on the back of a number of deals in progress across Australia and the US, including the sale of Rio Tinto subsidiary, Coal & Allied. There are also improving prospects for deals in steel outside of China, with the acquisition of ThyssenKrupp’s Brazilian business by Ternium already in the pipeline,” the firm said.

Global aggregate capital raised increased by 15 per cent y/y to US$71b in the second quarter of 2017, around US$20 billion higher than the first quarter.

China’s dominance of capital raising activity has reduced, accounting for US$1.3 billion (7.5 per cent) of the quarter-on-quarter increase. Areas including Oceania, South America and Africa have had at least a US$1.5 billion increase in capital raised, showing improving credit conditions for the global mining sector.

EY believes reducing capital will also be a key focus for the rest of 2017.

“We believe there will continue to be a focus on reducing cost of capital over the remainder of the year, while working capital investment will remain core. However, it’s unlikely that debt reduction will remain a priority for the large producers given the balance sheet recovery of the last 12 months,” EY said.

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