M&A holding pattern likely in election year


May 1, 2012

Global volumes of announced merger and acquisition (M&A) deals dropped to U.S. $416 billion in the first quarter of 2012 from U.S. $737 billion a year ago, according to Thomson Reuters. M&A activity in the United States was down 60 percent in the first quarter of 2012 from the same period in 2011. European M&A was down 33 percent, and Asia-Pacific M&A was down 42 percent.

Deal activity will be modest as long as there is global economic uncertainty impacted by sovereign debt issues, increasing oil prices, and unease in the Middle East. Add to this uncertainty the credit markets, federal highway bill (just extended by Congress for 90 days), and residential housing, and there is hesitation on both the buy and sell side. Last, but not least, is the impact of a presidential election year.

Opinions vary, with most believing that deal activity will increase. The question is whether the recovery will be in 2012 or 2013. Although the economy is beginning to show modest signs of improvement, the election could have a major impact on business regulations, taxes, and the way the government spends its money. Companies tend to maintain a holding pattern during election years, which could suggest that activity will be modest until 2013.

Recent transactions

Pioneer Natural Resources, Inc. acquired Carmeuse Industrial Sands, Inc., headquartered in Pittsburgh, for approximately $300 million. The company has been renamed Premier Silica LLC and will operate as a subsidiary of Pioneer Natural Resources Co. The company produces and distributes silica industrial sand products and serves oil and gas extraction, industrial manufacturing, building material, and recreational and environmental industries.

Summit Materials, LLC acquired the aggregate operation of Norris Asphalt Paving Co. The aggregate operations are based in Cameron, Mo., and serve the northwest part of Missouri.

Other news

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Companies continue to de-leverage their balance sheets by divesting assets. Cemex sold assets valued at U.S. $225 million in 2011 and expects to sell an additional U.S. $500 million by the end of 2012. Lafarge and Heidelberg Cement are also considering the disposal of assets. Lafarge plans to divest of at least one billion euros of assets in 2012.

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