Global steel companies are optimistic about making acquisitions over the next three years, even as the ongoing slowdown has impacted the pace of consolidation in the industry, a latest Deloitte survey says.
Steel companies are expecting that they would be making acquisitions over the next three years, despite the economic downturn being a significant factor in short-term decision making regarding M&A activity.
About 69 per cent of the executives surveyed are currently considering an acquisition, according to the survey titled, 'Getting back in the water: Consolidation in the global steel industry."Some of the major steel players are not just standing on the shoreline looking to see if it is safe to get back in the water-- they are diving in and exploring deal opportunities today," Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry Group Global Steel Leader Nicholas Sowar said.
However, mergers and acquisition in the Indian steel scenario may not be easy because they are in a nascent stage at present as compared to the rest of the world. "Like the global steel industry, Indian steel sector is also fragmented and is a candidate for consolidation. However, consolidation in India looks difficult since the industry is still not as mature like it is in the rest of the world, companies have announced green field investments or have gone through big acquisitions in the recent past," it said. Besides, in face of the credit crisis, as many as 73 per cent of executives surveyed said their companies were likely to assess the implications of decreased liquidity and the higher cost of capital.
Moreover, 67 per cent expected to manage capital to free up cash and 60 per cent said they were setting new priorities for capital investment, the survey revealed. According to the Deloitte report, managing corporate cultures, integrating management processes, and managing change were cited as the top three challenges in conducting acquisitions.
But less than half of the executives surveyed said their companies conducted a detailed analysis of corporate or cross-border cultural issues when considering an acquisition or that these issues were very important when deciding whether or not to proceed.
"There is generally a more cautious approach to acquisitions right now. This is largely due to the economic downturn's impact on financial results and the credit markets, making it more difficult to price and finance deals," the survey added.
