M&A activities to slowdown in the next six months, forecasts E&Y

Mining News  |  2013-05-15 15:08:41   |   By

The leading global professional services organization-Ernst & Young sees less chance of any pick up in M&A activities during the next six months period

NEW YORK (Scrap Monster) : The leading global professional services organization-Ernst & Young sees less chance of any pick up in M&A activities during the next six months period.

According to the recently published report ‘Capital Confidence Barometer’ by E&Y, only 24% of the global mining and metal companies are focused on M&A activity. The outlook for the next two quarters though states that 57% of the companies consider that the global economy is bound to improve during this period.

The report further states that weaker commodity prices, cost inflation and labour unrest are preventing companies from entering into new ventures and forcing them to indulge in drastic measures to reduce their operating costs, including staff reductions and mine closures.

The companies are seen opting for lower-risk organic growth, optimizing capital allocation and strategic divestments rather than M&A. During the first quarter of the year, the total deal value fell to $16.3 billion, 45% drop year-on-year. There were only 168 deals altogether during the first quarter which is sizable 35% lower when compared to same quarter the previous year.

In the latter half of the year, 91% of deals are expected to be below US$500m, up from 74% in October 2012, as companies take care not to jeopardize balance sheet agility and credit ratings. 

According to E&Y, opportunities always exist and those companies with best approach to capital planning will emerge successful.