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London, February 2014
Ernst & Young (EY) 2013 trends, 2014 outlook: A look back at 2013 as an inflection point, a year when management and investors finally came to terms with a new investing paradigm.
The extreme price volatility and rapid changes to the global economy persisted through 2013. Year-end reporting announcements were littered with headlines of impairments and recriminations that forced changes in strategy and senior management across many of the industry’s participants during 2013.
As a result, we saw investing activity contract during 2013, where the risks were just too great given the moving base on which decisions needed to be made. Acquisition plans were not supportable and as a result, few deals were pursued. As the year progressed, even divestment plans were scaled back as it became clear that price expectations could not be met, and as balance sheets became less stressed due to refinancing and stronger cash generation in the second half of the year.
Excluding the Glencore Xstrata merger, value decreased 16% to US$87.3b, highlighting the contraction in investment spend across the sector during 2013. Although there were notable exceptions, the majority of deals that completed in 2013 were largely smaller low-risk acquisitions. These were fueled by a desire to:
Increase an existing stake
Achieve domestic or inter-regional consolidation
Secure future supply
As the year progressed, even divestment plans were scaled back because of the gap between the valuation expectations of buyers and sellers, and as balance sheets became less stressed due to refinancing and stronger cash generation in the second half of the year.
This investment ‘inertia’ is clear in the underlying deal volumes and values for the year.
Capital raising followed a similar trend; there were few new investments in the sector and the bulk of capital raised during 2013 is being used to refinance existing facilities. A pull-back in risk capital hit the junior sector hardest, with equity markets providing little support.
To bridge this gap, alternative capital raising options provided some reprieve but did not satisfy the level of capital being demanded across the sector.
However, the continued rise of private capital in the sector, including the increased share of total M&A undertaken by financial investors (by value) from 5% in 2012 to 19% in 2013, supports the view that 2013 marks the tipping point for the sector, with many of the providers of such capital calling the bottom of the market.
“2013 was a year of calibration and repositioning. Those mining companies who had a change of leadership refreshed their strategies and focused on productivity and capital optimization rather than pursuing M&A.”
- Lee Downham, Mining and Metals Global Transactions Advisory Services Partner, UKI
Key trends in 2013:
703 deals globally with total deal value of US$124.7b.
Excluding the Xstrata/Glencore merger, 702 deals worth US$87.3b, down 25% and 16%, respectively, year-on-year.
Proceeds raised from capital raising were up by 9% to US$272b, largely due to some exceptional loan refinancings, but remain well below 2011's peak of US$340b
Capital raising volumes were down 9% to 2.6b issues, the lowest since 2008.
Financial investors increased their share of total M&A by value from 5% in 2012 to 19% in 2013.
Only 19 deals of US$1b+ in 2013, compared to 26 such deals in 2012. The 19 US$1b+ deals in 2013 represented 72% of total deal value but less than 3% of deal volume, highlighting the risk-averse nature of deal-making during the year.
IPO volumes were down 70% to just 26, the lowest amount in at least a decade, with only US$0.8b raised. Proceeds raised from follow-on issues increased marginally (1%) to US$26b, but proceeds raised by junior explorers fell by 43% to US$5.9b
Convertible bond proceeds were up 119% year-on-year to US$7.7b while corporate bond proceeds fell 22% to US$88b
Loan proceeds increased 40% to US$149b
Gold was the target of 34% of deals by volume, making it the most sought-after commodity in M&A in 2013
Cross-border deal activity as a proportion of total deal volume fell for the first time since the financial crisis, dropping from 52% in 2012 to 42% in 2013, with only 18% of total deal value in 2013 targeting cross-border assets
Ends --
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