Australia, Canada favoured M&A locations as PwC declares ‘transformational deals are back’

Australia and Canada continue to be the favoured target locations for M&A transactions in mining, with multinational professional services firm PwC also declaring – “transformational deals are back”.

In its 28 March Commodity Insights report, S&P Global reports that as in 2021, Australia and Canada were a hive of activity for M&A in 2022.

Canada (13 deals) and Australia (12 transactions) hosted 45% of the companies and projects targeted for dealmaking last year. The 2 countries accounted for 69% of the total mining deal value last year – Canada at $8.83 billion and Australia at $7.96 billion

Over the past 2 years acquirers have also been spending significantly more on corporate deals than on projects, as well as on producing operations than on non-producing assets, with majors the biggest spenders.

S&P Global reports majors targeted companies and projects alike but spent significantly more (84% of their deal total) on producing assets than on non-producing ones.

The 56 deals in 2022 had a total deal value of $24.49 billion. There were 29 deals valued at more than $100 million, totaling $23.46 billion and accounting for 96% of the total deal value last year. The metrics for 2021 were similar at 30 deals over $100 million, totaling $26.96 billion and making up 96% of the year’s total.

Meanwhile, released in April, PwC’s 2023 M&A Integration Survey titled Transact to Transform reflects S&P Global’s data, and shows globally from 2020 to 2022 transformational M&A transactions increased significantly to about half of all deals.

During the 2017-2019 period, PwC says the portion of transformational M&A was only 19%, which was significantly down from 2014 to 2016 when such large transactions accounted for 54% of all deals.

As a result, PwC firmly declares – “transformational deals are back”.

In early January, Mining.com.au reported that deal activity in mining was shaping up to be electrified in 2023, as the green energy transition and adoption of mobility electrification creates ever-growing demand for critical and battery metals.

Australia and Canada M&A magnets

The deal activity that has resulted reflects the data from both PwC and S&P Global that producing operations in Australia and Canada are being favoured than non-producing assets, with majors making the most M&A moves.

For example, Albemarle Corp’s (NYSE:ALB) $3.7 billion bid for ASX-listed lithium developer Liontown Resources (ASX:LTR) is indicative of how green energy incentives such as the US Inflation Reduction Act has made some suppliers attractive takeover propositions.

Also, OZ Minerals (ASX:OZL) shareholders have approved a $9.4 billion takeover by mining giant BHP (ASX:BHP). Newmont’s (NYSE:NEM) proposed acquisition of Newcrest (ASX:NCM) for almost $30 billion would boost copper production for the world’s largest goldminer should the transaction eventually be inked.

Canadian gold miner Yamana Gold Inc. (NYSE:AUY) was the target of 2 takeover bids in 2022, which included an all-scrip offer from Gold Fields (NYSE:GFI), which was announced in May and terminated in November. Following the rejection, a US$4.84 billion joint proposal from Agnico Eagle Mines Ltd. and Pan American Silver Corp. was made. Yamana has accepted the offer, making this the second-largest deal value in 2022.

In a reversal of a 4-year trend, in 2022 buyers also spent more on base metals than on gold, with copper driving the difference

S&P Global notes that last year the top 3 deals were major-major takeovers, with 2 focused on copper and another on gold. The fourth largest was US-based Metals Acquisition Corp.’s (NYSE:MTAL) proposed $1.2 billion acquisition of the producing CSA copper mine in New South Wales. The high deal value reflected the price paid for acquired copper, which was the highest for the metal in 2022 at $0.89 per pound.

In a reversal of a 4-year trend, in 2022 buyers also spent more on base metals than on gold, with copper driving the difference. S&P Global says this is strong evidence of increased interest in the red metal due to its central role in the green energy transition and concern over dwindling reserves and supply.

Cracking the code

PwC says that CEOs and companies face markets being reshaped by technology and disrupted by geopolitical unrest, a global pandemic, and economic shocks. As a result, they are turning to transformative acquisitions to reposition and reinvent their businesses for long-term success.

PwC says companies are beginning to crack the code on how to make large, transformative M&A deals successful…

The firm reports the trend towards transformational transactions has emerged as executives appear to better understand how to integrate large acquisitions this time around. PwC says companies are beginning to crack the code on how to make large, transformative M&A deals successful – by leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

PwC found that 73% of CEOs expect a global economic decline in the next 12 months. Despite this, only 14% indicate they would delay acquisitions, which the firm says raises the stakes for dealmakers and requires companies to concentrate on a disciplined, proven approach to integration and, ultimately, transformation.

Robust period for deal activity

As the below PwC graph depicts, there are 4 types of deals categorised by the firm in its survey report. Transformational refers to acquiring new markets, channels, products, or operations in a way that fundamentally changes the fully integrated organisation.

Absorption deals include those acquiring and integrating companies similar to the buyer, such as industry competitors. Tuck-in transactions are those acquiring and integrating smaller companies, generally to gain access to key products, technologies or attracting talent. Whereas a stand-alone transaction refers to acquiring a business and operating it separately from the rest of the organisation.

In mining, PwC also expects strategic partnerships will continue to be on the agenda for companies in 2023 and that industrial players will likely seek direct ownership or offtake agreements with critical minerals players. Another trend shaping investment activity is competition, with PwC noting the sector was now attracting new buyers from other industries.

Environmental, sustainability, and governance is forecasted to be a major focus of deal activity to round out 2023

Environmental, sustainability, and governance (ESG) is forecasted to be a major focus of deal activity to round out 2023, with companies and investors demonstrating an insatiable appetite for clean technologies and critical minerals.

As reported by this news service, H1 2022 was a robust period for deal activity in the metals and mining sector, however deteriorating global macroeconomic conditions led to lower M&A levels in H1 2022. As the battery and critical metals market continues the year with lingering production-side challenges, 2023 started on the back of a hive of M&A among ASX-listed miners with exposure to these commodities.

At the start of 2022 dealmakers were riding the crest of the best year on record for global M&A in 2021 with more than 60,000 publicly disclosed deals breaking US$5 trillion in value for the first time since M&A records began.

It would seem that crest is just starting to rise further as more and larger deals play out.

Write to Adam Orlando at Mining.com.au

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Written By Adam Orlando
Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.