As 2014 comes to a close, there is a lot of movement in the global economy.
Mergers and acquisitions are happening with Asian and Middle Eastern conglomerates strategically moving west and vice versa.
Today’s economists theorize that merger and acquisition activity comes in waves. Is a new wave beginning in the resource space? RCI Capital Group has its fingers on the pulse of the M&A activity in the resource sector, with a mission to deliver attractive investment opportunities for our clients.
For example, former Barrick Gold Corp executive Aaron Regent’s new company Magris Resources combined with Asian investors to acquire Iamgold Corporation’s niobium mine and rare earth deposit in Quebec for $530 million in cash. Magris partnered with Hong Kong-based CEF Holdings and Singapore sovereign wealth fund Temasek to provide the financing required for this transaction.(Source:http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/iamgold-to-sell-niobec-mine-in-quebec-for-500-million/article20906794/#dashboard/follows/)
In a 2008 study, Marina Martynova and Luc Renneboog reviewed a century of transactions and identified six major waves of M&As: 1890–1903, 1910–1929, 1950–1973, 1981–1989, 1993–2001, and 2003–2007. Their research shows that the end of a wave typically coincides with a crisis or a recession—for example, the most recent wave ended with the subprime debt crisis in 2007. What triggers the start of a wave varies across time, but three factors have clearly driven M&A activity since the end of the 19th century: industrial and technological shocks, regulatory changes, and credit availability. (Source: http://www.ftpress.com/articles)
“Our global offices are constantly developing relationships with companies in China and other resource-driven countries who are interested in acquiring a stake in the North American resource market,” says John Park, RCI Capital Group CEO. “At RCI, our mission is to be at the intersection of strategic capital from Asia and resource investment opportunities from Canada.”
Is the global economy on the verge of another wave of M&A activity or are companies going to consolidate their positions through strategic moves? Especially in the mining arena, when companies are seeking additional reserves or a new source of capital for future production, a consolidation strategy might be deployed. Every company wants to grow, increasing their market share and profits. Do they grow organically? Or do they raise foreign investor capital and seek to grow by acquiring another company in their sector?
For example, instead of building their own processing facility, a resource company might look to offer a percentage of their future production to a competitor in exchange for use of an existing processing facility. Both companies can be more efficient together than if they work alone. In this scenario, both companies benefit from the transaction.
In their recent book, “Valuations for Mergers and Acquisitions”, Kenneth Faris and Barbara Petit discuss several types of consolidations in the M&A market. Operating synergies arise from the combination of the acquirer and target’s operations. One type of operating synergies is cost reduction. Many companies view M&As as a way to reach a critical size and, consequently, be able to benefit from economies of scale with lower production costs. An acquisition might also generate cost savings in advertising, marketing, or research and development. Revenue enhancement and cost reduction are more likely in cases of horizontal integration and can also play a role in vertical integration. (Financial Times Press, June 2013)
RCI’s exclusive focus on the energy and resources sectors, along with our strategic location in Vancouver, one of the gateway cities to Asia, puts us in a unique position among financial advisory firms.