While mergers and acquisitions activity in the industrial products industry performed well during the first quarter of 2008, results from the second and third quarters indicate a downward trend for most sectors, according to a series of third-quarter M&A reports released Thursday by PricewaterhouseCoopers (PwC).

Deal values suffered in the metals and industrial manufacturing sectors, and the pace of deal activity declined in the transportation and logistics (T&L) sector.

The chemicals sector was the only industry to experience an uptick in both deal value and deal activity throughout 2008.

Due to the lack of mega-deal announcements in the second quarter (deals exceeding $10 billion), combined with an absence of large deals (deals with a disclosed value of at least $1 billion) in the third quarter in the industrial manufacturing and metals sectors, total deal value is not on pace to exceed levels achieved in 2007 in these sectors.

Even though there were 14 large deals announced in the T&L sector during the third quarter, some deals have since been withdrawn and others have yet to be finalized. This will likely impact deal value in this sector through the rest of the year.

Wavering deals continue to impact financial investor confidence in industrial products M&A, allowing strategic investors to dominate deals for companies in all sectors, PwC said.

The recent strengthening of the U.S. dollar coupled with a deteriorating global credit market has caused a significant decline in cross-border deals for U.S. targets across all sectors. Increasingly, U.S. companies are acting as the acquirers or targets for other U.S. entities while foreign investors take a backseat, PwC said.

“The weakened economy has clearly caught up with many companies in the industrial products sector that may have more aggressively pursued deals in the past,” said Dean Mullet, Canadian industrial products leader at PwC, in a release.

“The faltering credit markets are showing little sign of immediate improvement, leading to substantial doubt among financial investors in pursuing M&A activities. Meanwhile, strategic players, specifically in the transportation & logistics and chemicals sectors, continue to evaluate opportunities to negotiate large, transformational deals that add value to their companies,” Mullet added.

IE