The pace of global deal activity in the metals industry significantly declined in first quarter 2009 as falling end-market demand and weak commodity prices created a difficult operating environment, according to a report released Tuesday by PricewaterhouseCoopers LLP (PwC).

Eighteen deals (five completed; 13 pending or intended) with a disclosed value of at least US$50 million each were announced in the first quarter, showing a strong slowdown compared with the 142 total deals of similar value in 2007 and 138 deals in 2008.

Total deal value declined sharply, resulting in only US$12 billion in deals announced for metals targets in Q1, far behind the US$298.2 billion pace set in 2007 US$78.6 billion in 2008.

Although the pace of deals is showing a decline in 2009, PwC found that the average value for deals announced during the first quarter remained similar to the average value announced in 2008.

Additionally, interest in minority stake purchases increased dramatically. Acquirers seeking less than 50% ownership accounted for more than 55% of the deals announced in first quarter 2009, up from 33% of deals announced in 2007 and 2008.

“The decline in deal activity for the metals sector in the beginning of 2009 does not come as a surprise, given the continued economic struggles this sector faces globally,” says Jim Forbes, global metals leader at PwC. “With strategic buyers’ general aversion to risk, as well as tight credit and weak commodity prices, we are likely to continue seeing acquisitions of minority stakes as the preferred deal type throughout 2009.”

The report notes that organizations are putting high-priced deals on hold, as seen during first quarter 2009, when only two large deals (worth at least US$1 billion) were announced. This compares with 31 higher-priced deals during 2007 and 18 in 2008. The falloff of large deal activity contributed significantly to the overall decline in overall deal value during the first quarter.

With the most credit-worthy strategic buyers focusing on capital preservation and deal interest changing toward minority stake purchases and divestitures of noncore assets, large deal activity likely will maintain a moderate pace throughout 2009, PwC says.

IE