M&A deal volume down 67% in engineering/construction sector: PricewaterhouseCoopers
NEW YORK, August 13, 2009 – The pace of deals in the engineering and construction sector slowed substantially during the first half of 2009 compared with prior periods, according to the inaugural edition of the PricewaterhouseCoopers LLP report, Engineering growth: Second-quarter 2009 global engineering and construction mergers and acquisitions analysis.
Total deals declined 67 percent to 42 in the first half of 2009 from 126 during first-half 2008. Deal value for the first half of 2009 totaled $12 billion, a 64 percent decline from the first half of 2008 ($33 billion).
While deal activity has remained weak on a year-over-year basis, there was an uptick in both deal value and volume between the first and second quarters of this year. In the second quarter of 2009, 27 deals were announced, nearly double the 15 deals announced in the prior quarter. And, total deal value jumped to $9 billion in the second quarter, compared to the $3 billion announced in the first quarter of 2009.
“Looking forward, we anticipate a limited amount of deal activity in most segments of the engineering and construction sector,” said Kent Goetjen, U.S. engineering and construction industry leader at PricewaterhouseCoopers. “Companies are bracing themselves for challenging operating environments, and investors continue to remain conservative. A wider global economic recovery is essential before we expect to see a significant increase in deal activity within this sector.”
Furthermore, large deal activity (defined as those with a disclosed value of at least $1 billion) has declined significantly from historical levels. In first-half 2009, there were two large deals compared to eight in 2008, 29 in 2007, and 21 in 2006.
Buyers from Asia and Oceania represented nearly one-third (31 percent) of deal volume in the first half of 2009, a slight decline from the 34 percent in the first half of 2008. And, during the first half of the year, all of the targets for these buyers were also located in the Asia and Oceania region. Comparatively, Asia and Oceania buyers spent only 65 percent of deal capital in their own region during 2008.
In addition to strong activity in the Asia and Oceania regions, North American buyers continue to be an important driver of engineering and construction deals. In the first half of this year, 29 percent of deal volume was attributable to North American buyers, compared to 21 percent in the first half of 2008. However, international buyers of U.S. targets were nearly nonexistent. During the first half of 2009, there was only one cross-border deal for a U.S. target, compared to seven cross-border deals for U.S. targets during the first half of last year. The ongoing lack of cross-border interest in U.S. targets likely reflects various factors, including volatility in foreign exchange markets and weak investor confidence.
The Rise of China
As the deal activity continues to increase in the AsiaPac Region, the second quarter Engineering growth report takes a deeper look at China specifically, including the country’s continued impact on the global economy, as well as the challenges and opportunities that exist for companies looking to initiate or expand existing business with China.
In late 2008, the Chinese central government announced a RMB 4 trillion ($586 billion) spending program. This Chinese infrastructure stimulus plan bodes well for the engineering and construction sector, particularly for companies already competing in China.
For information on Engineering growth and to access the full report, including the special section on China, visit: www.pwc.com/us/industrialproducts.
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