Private Equity Ready to Target Big Miners: Report
Published 3:18 AM ET Wed, 11 July 2007 Updated 3:07 PM ET Thu, 5 Aug 2010 Reuters
Private equity corporate raiders who have so far sidestepped the mining sector despite widespread consolidation, could soon reset their sights, global accounting and consulting firm Ernst & Young said on Wednesday.
According to a report from the group's global mining and metals group, traditional barriers to investment in mining by private equity are dropping and even the biggest companies in the sector could be potential targets.
Private equity dealmakers have historically avoided the sector because of its boom-to-bust cycles, specialist requirements and lack of easy exit strategies.
"But increased action in the mining sector indicates that the historical reasons behind the lack of private equity may no longer apply," Ernst & Young said.
Mining companies' balance sheets, flush with cash thanks to soaring prices for industrial metals, fit well with the low cashflow-to-debt ratio favored by private equity, which tends to rely on high leverage.
"The knock-on effect of this is that mining companies have become highly cash-generative, with predictable and secure cash flows," the report said.
On Tuesday it was reported that BHP Billiton, the world's top mining company, may team up with Blackstone Group or other private equity firms to bid for U.S. aluminum maker Alcoa .
While private equity this year missed out on some of the sectors biggest takeovers - Brazil's CVRD.