Resources M&A plunges

THE value of merger and acquisition activity in the Asia Pacific's resources sector fell by around 50% in FY16, according to Mergermarket data.
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Ashurst M&A partner Antonella Pacitti.

Kristie Batten

The value fell to $A53.37 billion from $104.44 billion in FY15.

Mining sector M&A fell by nearly 70% to $29.71 billion, while the number of deals dropped to 87 from 121.

Ashurst M&A partner Antonella Pacitti said the drop in mining transactions reflected the impact of weak commodity prices.

“History shows us that companies tend to pursue growth through M&A at times when the financial performance of their business is strong and they have confidence in the outlook, and their ability to accurately assess value,” she said.

“For the most part, the focus of mining companies in the past 12 months has been on internal levers such as cost-cutting and restructuring to combat the fall in revenue being experienced.

“So it should come as no surprise that we have experienced a fall in M&A during the past 12 months against a backdrop of soft commodity prices and uncertainty about the economic outlook, which seems set to continue."

Australian mining transactions totalled just $2.59 billion, down from $19.38 billion in FY15.

"For so long as these conditions persist, we can expect to see a continued 'stop-start' effect on deal flow and completion," Pacitti said.

 

Ashurst predicts that companies exposed to gold and battery-linked metals like graphite and lithium would be in demand, while bulk commodity markets would remain weak.