Severstal

Getting back in the water Consolidation in the global steel industry

Key messages

• The financial crisis and global economic slowdown are having major impacts on steel companies, with most companies less likely to make fewer acquisitions in the coming year. • M&A remains a critically important business strategy, and steel companies need to master the ability to carefully evaluate potential targets and quickly execute acquisitions in order to be well placed when the economy regains steam. • Most companies will need to make progress in acquiring key competencies needed in acquisitions—especially in integrating management processes, managing cultural differences, and capturing synergies.

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Executive summary

In 2008 steel industry consolidation—which had accelerated at a blistering pace over the past decade—hit a brick wall. With the advent of the global economic decline and, in particular, the freezing of credit markets, demand plummeted and the availability of financing to support transactions all but disappeared.

In fact, some companies are facing debt covenant violations, requiring them to consider share issuances and divestitures to maintain financing for their current operations. As a result, the number of completed deals in 2008 fell by 25 percent and deal value dropped by more than half, to US$31 billion.1 Yet, despite the current cool down in consolidation, mergers and acquisitions (M&A) remains a critically important business strategy to achieve synergies, expand the customer base, and enhance competitive position. Even in today’s challenging business environment, steel companies need to master the ability to carefully evaluate potential targets and quickly execute acquisitions in order to be as wellplaced when the economy regains steam. In a recent study of global steel consolidation, Deloitte Touche Tohmatsu’s (Deloitte) Global Manufacturing Industry Group sought out major players in the steel industry to learn more about...