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Michael Poole

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Industry Trends

Oil Prices Decline, Gas Prices Likely to Follow

Gas prices increased more than 50% over the last year, but oil prices have already declined by 16% since October due to a few key developments. On November 23, President Biden announced a plan to release 50 million barrels of oil from the federal reserve alongside promises by the UK, India, South Korea, Japan, and China. On November 26, oil prices dropped from news of the Omicron variant tearing through South Africa, and the oil cartel OPEC decided to boost production on December 2. The Environmental Protection Agency (EPA) also announced a reduction in the required amount of ethanol to be blended into gasoline. The decision comes as ethanol has risen to its highest price level in a decade, another factor for the high gas prices. These events are all expected to lower gas prices in 2022.1 2

Bipartisan Infrastructure Law to Benefit Industrial Producers

President Joe Biden and the White House recently launched a new website and accompanying brand to promote the bipartisan infrastructure law as they travel across the country to garner support for their new "Build a Better America" brand. The law will benefit several industrial producers and contractors as it focuses on rebuilding roads and bridges, replacing water infrastructure, and creating new jobs across the country. The new legislation is focused on sustainability and rebuilding, with $550 billion in funding spread over the next five years for roads, bridges, mass transit, rail, airports, ports, and waterways. Additional investments include a $65 billion investment in improving the nation's broadband infrastructure, tens of billions of dollars in improving the electric grid and water systems, and $7.5 billion to build a nationwide network of plug-in electric vehicle chargers.3

Top Metals and Mining Companies Beat Earnings Expectations

Sixteen of the top twenty-five metals and mining companies in the US outperformed analysts' forecasts for normalized earnings per share for Q3 2021, with only seven falling below their forecasts and two performing in line with what they forecasted. Factors contributing to the increase in EPS include increased demand for rare earth materials as various nations work towards transitioning to clean energy, with rare earth materials producer MP Materials Corp posting the highest percentage to beat with an EPS of 27 cents compared to an estimated 17 cents. Metal resources have experienced increased prices due to the pandemic rebound, consumer spending, government stimulus efforts, and the energy transition. These factors will contribute to high metal prices over several years, likely through 2025.4

Gold Prices Spike as Inflation Climbs Closer to a Four-Decade High

US inflation recently reached a forty-year high of 6.8%, with the cost of living and the consumer price index rising in tandem. High inflation rates typically result in downward pressure on gold, but the market's anticipation that inflation will be greater than the Federal Reserve wants has resulted in an upward swing. Metal's prices have been trapped in range-bound trading due to inflation, Omicron concerns, and historically low real rates. However, prices were capped by a strong US dollar and concerns that the Fed may aggressively tighten monetary policy in the future.5

Global Chip Shortage May Continue Due to Semiconductor Manufacturing Labor Shortage

The continued global chip shortage has spurred the United States to end its dependence on foreign chipmakers by building new semiconductor fabrication plants, but the US lacks the vital talent it needs to create plants. To meet capacity for only critical applications, the US would have to add 5.5 percent of the global production, resulting in about 70 to 90 thousand manufacturing jobs. The US could retrain the current workforce for jobs that may be in more demand to fill future needs. This retraining process, known as upskilling or reskilling, will likely take a significant amount of time and funding, lengthening the global chip shortage and putting the US at a disadvantage to other countries in the short term.6

Low Supply of New Vehicles Creates High Demand for Used Vehicles

Demand for used vehicles is incredibly high as chip shortages continue to limit the production of new vehicles. The average price of a used vehicle sold at auction is about five thousand dollars more than pre-pandemic. As travel returns to normal levels, demand from rental car companies to restock their car fleets has further exacerbated demand for new vehicles. New vehicle prices are even higher than used vehicles, well over forty thousand dollars on average, according to J.D. Power, due to the shortage.7

DuPont Announces Plans to Purchase Rogers for $5.2 Billion

To further streamline operations, DuPont announced in early November that it plans to purchase electronic-materials specialist, Rogers Corp. The acquisition will integrate Roger’s operations into DuPont’s electronic and industrials unit, currently about 1/3 of the company’s $4.1 billion of Q3 sales. DuPont is also considering a divestiture of its unit primarily involved in materials used in automobile production. The acquisition is meant to realign operations and generate sales growth as DuPont’s share price remains relatively unchanged since 2019.8

Largest Transactions Closed

  • Target
  • Buyer
  • Value($mm)
  • Process & Motion Control Segment of Rexnord Corporation
  • Regal Rexnord Corporation
  • $3,763.00
  • Domtar Corporation
  • Karta Halten B.V.
  • $3,728.25
  • Masterflex
  • Avantor, Inc.
  • $2,900.00
  • Mechanical Power Transmission Division of ABB Ltd
  • RBC Bearings Incorporated
  • $2,900.00
  • Raven Industries, Inc.
  • CNH Industrial N.V.
  • $2,137.02
  • Lydall, Inc.
  • Unifrax I LLC
  • $1,445.58
  • Distribution International, Inc.
  • TopBuild Corp.
  • $1,001.00
  • CAI International, Inc.
  • Mitsubishi HC Capital Inc.
  • $986.61
  • NxEdge, Inc.
  • EnPro Industries, Inc.
  • $850.00
  • Test & Simulation Business of MTS Systems Corporation
  • Illinois Tool Works Inc.
  • $750.00

Other Financial Buyer Transactions Closed

  • Target
  • Buyer
  • Value($mm)
  • Loutre Land and Timber Company
  • PotlatchDeltic Corporation
  • $115.77
  • Pelican Products, Inc.
  • Platinum Equity, LLC
  • n/a
  • RelaDyne, Inc.
  • AIP, LLC
  • n/a
  • Specialty Products & Insulation Co.
  • Incline Management, L.P.
  • n/a

Other Strategic Buyer Transactions Closed

  • Target
  • Buyer
  • Value($mm)
  • Engineered Controls International, LLC
  • OPW Fueling Components Inc
  • $631.00
  • The ExOne Company
  • Desktop Metal, Inc.
  • $611.67
  • Reeb Millwork Corporation
  • U.S. Lumber Group, LLC
  • $577.00
  • Mayer Electric Supply Company, Inc.
  • Rexel USA, Inc.
  • $456.00
  • Fabri-Kal Corporation/PURE PULP PRODUCTS, LLC/MONARCH MILL POND, LLC
  • Pactiv Evergreen Group Holdings Inc.
  • $380.00
  • Assets of Farrar Scientific, LLC
  • Trane Technologies plc
  • $365.00
  • White Drive Motors & Steering
  • Interpump Group S.p.A.
  • $340.52
  • Angelina Forest Products lumber mill located in Lufkin, Texas
  • West Fraser Timber Co. Ltd.
  • $300.00
  • Arrowhead Systems, LLC.
  • Regal Rexnord Corporation
  • $297.00
  • Acme Cryogenics, Inc.
  • Dover Corporation
  • $295.00
  • OSB facility of Georgia-Pacific LLC
  • West Fraser Timber Co. Ltd.
  • $280.00

 

Source S&P Capital IQ as of 1/11/2022 and PCE Proprietary Data

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PCE Transactions

Contacts

Michael Poole

Orlando Office

407-621-2112 |

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Michael Rosendahl

New York Office

201-444-6280 Ext 1 |

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Data Assumptions

This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

Glossary

EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
LTM - Last Twelve Months
TEV - Total Enterprise Value

Sources:

  1. Newman, Rick. “Biden gets a break on oil and gas prices.” Yahoo!Finance, Yahoo, 2 Dec. 2021.
  2. Ferek, Katy Stech. “EPA Trims Ethanol Mandate for Gasoline as Biofuel Pressures Pump Prices.” The Wall Street Journal, Dow Jones & Company, Inc., 7 Dec. 2021.
  3. Sullivan, Kate and Vazquez, Maegan. “White House launches new branding for infrastructure law: 'Building a Better America'.” CNN, Cable News Network, 8 Dec. 2021.
  4. Ignacio, Reicelene Joy. “More than half of top mining companies beat analysts' EPS expectations in Q3'21.” S&P Capital IQ, S&P Global Market Intelligence, 8 Dec. 2021.
  5. Saefong, Myra P. “Gold prices turn higher despite U.S. inflation rate climbing to a nearly 4 decade high.” Marketwatch, Microsoft, 10 Dec. 2021.
  6. VB Staff. “Report: Critical talent shortage for over 70,000 semiconductor manufacturing jobs.” VentureBeat, VentureBeat, 9 Dec. 2021.
  7. Henry, Jim. “Used Cars And Trucks Command High Prices: High Demand, Low Supply.” Forbes, Forbes, 30 Nov. 2021.
  8. Lombardo, Carla “DuPont to Buy Rogers for $5.2 Billion, Divest Part of Mobility Unit”, WSJ, 2 November 2021.
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