According to a recent report by EY, the global deal value for mining and metals M&A increased by 93% in the second quarter of 2016. Global M&A deal value in Q2 2016 was up US$3.7 billion to US$7.8 billion, almost double the US$4.1 billion in deals the mining and metals sector saw in Q1 2016. The sector also saw deal volume rise 27% from Q1 2016 and 13% year-over-year.
This increased activity is good news for a sector that has seen a sustained downward trend in deal activity over the past five years. EY suggests that growing confidence in the mining and metals sector may be the cause of increased activity in Q2 2016 and that mining and metals companies are looking to strengthen their balance sheets and increase flexibility by reducing their portfolios through strategic divestures.
Mining Review Africa quotes Quintin Hobbs, Mining and Metals Transactions Director at EY, as saying, "As we have seen some commodity price stability return, this has resulted in a decline in expectation gaps between buyers and sellers and a reduced price gap is reflected in the rise in numbers for M&A mining and metals deal activity globally and locally. There may be further room to indicate a more positive outlook for the sector."
Geographically, Asia-Pacific saw the highest M&A deal value in the mining and metals sector in Q2 2016, with a combined deal value of US$3.6 billion, and North America saw the greatest deal volume at 56 deals, coming largely from mid-market consolidation in the gold sector. This continues the 2015 trend in which Asia-Pacific based acquirers were the highest-value dealmakers and North American acquirers were the most prolific.
However, market uncertainty remains. EY implies that the large increase in Q2 2016 may be due to weak numbers in Q1 2016 and points out that year-over-year numbers are down 51% from Q2 2015 (due in part to the 2015 BHP Billiton demerger). It is yet to be seen if the bottom of the market has finally been reached and if Q2 2016 is the beginning of an upward trend in mining and metals M&A deal activity.
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