Welcome to the first quarter of 2008 edition of our Forging ahead analysis of mergers and acquisition activity in the metals industry. Deal activity remained high with 31 deals announced during the quarter, a slight deceleration of the pace set in 2007, but active nonetheless. Unlike 2007, however, large deals were noticeably absent, resulting in a lower average deal value than during 2007 or 2006.
There continues to be a strong interest in North America targets. Targets in this region accounted for 42 percent and 26 percent of the value and number of deals announced, respectively, primarily led by non-US acquirers. Interest in Asia-Pacific and South American targets remained high, especially those in China and Brazil. While no deals were announced for Russian targets, acquirers located in that region were quite active, accounting for four of the eight deals larger than $1.0 billion announced during the quarter.
The aluminum sector continued to see deal activity, with $8.7 billion in announced deals during the first quarter, but the steel sector was even more active, with $10.0 billion in announced deals. Given the consolidated nature of the aluminum sector, it is not surprising that deal activity is proceeding at a faster pace in less consolidated segments.
Strategic investors continue to be the primary deal drivers in the metals sector. In 2006 and 2007, they accounted for approximately 90 percent of the value of announced deals, rising to more than 99 percent in this most recent quarter. This is a market for well-capitalized strategic investors.
The valuation of deals, measured by the ratio of a deal's value divided by the target's earnings before interest, taxes, depreciation, and amortization (EBIDTA), has seen a steady increase since 2005. This quarter's median ratio of 8.7 times EBIDTA remained in line with the valuation deals seen in 2007. It remains to be seen whether a deteriorating US economic climate and tight credit conditions will impact overall valuations for the remainder of the year.
We hope that you enjoy this latest quarterly edition of Forging Ahead. If you have any questions about our findings, please contact us.
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