Coal operation in AustraliaHO
Coal is hot.
The potential $3.3-billion acquisition of Western Coal of Canada by Walter Energy of the U.S. has mergers and acquisitions in the coal industry on pace to almost triple 2009's activity.
Looking at the numbers on the deals of the last two years, the trend is not hard to spot. More companies are buying, they are paying more for targets on multiples such as earnings, revenue, and assets.
So far in 2010, there have been 212 deals involving the coal industry, totalling $30.4-billion (U.S.). Most of the deal making is in the past three months, and there has been more than $6-billion just this week.
That year-to-date total doesn't even include the just announced potential bid for Western, which bumps that up to close to $34-billion
At the same point in 2009, there were 149 deals worth $13.5-billion, according to figures from Bloomberg. The average deal size was $123.5-million. This year, it's approaching $200-million.
Aside from premiums, which are down a bit (24 per cent on average this year vs. 31 per cent last year) as investors bid up the stocks, the prices paid for coal assets are rising based on other measures.
Here are some comps, courtesy of Bloomberg:
Price/EBITDA has risen to 8.6 from 6.7.
Price/book value has almost doubled to 3.6 from 1.9.
Price/total assets has soared to 1.6 from 1.1.