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PwC: Industrial Products M&A activity surges in Q2

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PwC: Industrial Products M&A activity surges in Q2

Financial investors playing greater role in Industrial Products M&A activity.

Merger and acquisition deal activity surged across the global industrial products industry during the second quarter of 2014, according to professional services giant PwC.

There was a significant uptick in both deal volume and value across the majority of sectors on both a sequential and year-over-year basis, with larger deals and cross-border activity picking up. PwC's IP practice examined deal activity in the second quarter of 2014 across six sectors: aerospace & defense, chemicals, engineering & construction, industrial manufacturing, metals and transportation & logistics.

"As management teams and investors search for growth, we are seeing an increased interest in overseas deal activity."

"As the global economy recovers and the competitive environment intensifies, we are seeing a widespread increase in M&A activity, including a more confident base of business leaders taking a risk-tolerant approach to deal-making," said Robert McCutcheon, U.S. industrial products leader, PwC. "While the M&A market continues to be driven primarily by local deals aimed at strengthening core products and services, we are beginning to witness a rebound in cross-border activity as acquirers search for opportunities in faster-growing, but more volatile markets. As deal multiples continued to move higher, deal sizes have grown, elevating execution risk and narrowing the path to capturing value on investment. We are also seeing an interest in acquiring tools that enable innovation, including key technology and intellectual property. As sector consolidation begins to ebb, we believe this will become an increasingly larger component of the deal environment in the year ahead."

Across the entire IP industry, there were 223 transactions worth $50 million or more, totaling $148 billion in the second quarter of 2014, compared to 173 deals and $56 billion in total value during the second quarter of 2013. Overall deal activity in the second quarter of 2014 was also up notably over the first quarter of 2014, which recorded 169 deals totaling $68 billion. Every sector posted a sequential increase in deal volume during the second quarter of 2014, while five of the six sectors in the study posted year-over-year increases in M&A value for the period.

Industrial manufacturing was the most active sector during the second quarter, with 62 deals totaling $61 billion, up substantially from 36 deals valued at $10 billion in last year's comparable period. The transportation and logistics industry was also active with 51 deals valued at $20 billion during the second quarter, up from 39 deals valued at $17 billion in last year's second quarter. Rounding out the top three sectors for M&A activity, the chemicals sector recorded 40 transactions valued at $12.5 billion during the second quarter, up from 17 deals valued at $5.4 billion in last year's comparable period.

Deal sizes continued to grow during the second quarter of 2014 and the IP industry is now on track to post the strongest year for total deal value since the onset of the economic crisis. Overall, average deal value increased substantially to $720 million from $320 million in last year's second quarter and $400 million in the first quarter of 2014. All told, there were 26 mega deals (transactions worth more than $1 billion) worth $110.1 billion across the IP industry during the second quarter, compared to ten mega deals worth $19.6 billion in the second quarter of 2013 and 17 deals worth $29.5 billion in the first quarter of 2014. The industrial manufacturing sector led the group with 11 mega deals during the second quarter followed by five mega deals in the chemicals sector and four mega deals in the aerospace and defense sector.

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