PitchBook's 3Q 2017 M&A Report Reveals Slowdown in Activity, But Acquirers Increasingly Target Companies with Institutional Backing

SEATTLE, Oct. 26, 2017 /PRNewswire/ -- According to PitchBook's 3Q 2017 M&A Report, activity in both North America and Europe has slowed in 2017, coming off record-setting years in 2015-2016. M&A transactions totaled $1.42 trillion across 13,972 deals through 3Q 2017, declines of 19% and 23% from the same period last year. Ongoing political uncertainty has played a key role in the M&A slowdown in 2017 as both markets face substantial potential government reforms. Meanwhile, M&A deal sizes have trended larger as evidenced by rising median transaction size from $31.6 million in 2016 to $52.7 million through 3Q 2017. Rising valuations, platform roll-ups, and large cash reserves on corporate balance sheets are all factors that have helped escalate prices. What's clear in 2017 is the increased institutionalization of target companies, as the proportion that have institutional backing at the time of acquisition has risen to an all-time high.

"M&A activity has slowed considerably in 2017, but is still strong on a historical basis. Strategic acquirers have slowed their pace of acquisition as they integrate recently-acquired companies into existing operations," said Dylan Cox, analyst at PitchBook. "At the same time, deal sizes have increased substantially. No company seems too large to be considered a target."

Political Uncertainty Remains Top of Mind for Dealmakers
M&A activity in both North America and Europe has slowed in 2017, but is still healthy compared to historical performance. In North America, M&A activity totaled $925.3 billion across 7,348 deals through 3Q – declines of 24.3% and 22.6%, respectively, compared to the first three quarters of 2016. Similarly, European M&A activity reached $439 billion across 5,810 transactions, representing declines of 19.8% and 32.2%, respectively, from the same period last year. The slowdown in both markets can be partially attributed to ongoing uncertainty, which has some acquirers adopting a "wait-and-see" approach. Specifically, the US faces the prospects of tax and healthcare reform, while Europe continues to grapple with the potential impact of last year's Brexit vote.  

Prices Continue to Climb
Amidst the decline in M&A deal activity, transactions have increasingly involved larger targets, driving up the median deal size by 66% from the same period in 2016. The median EV/EBITDA multiple for transactions completed through 3Q 2017 reached 10.6x in North America and 10.0x in Europe—both of which are the highest tracked in PitchBook's dataset. Additionally, median debt usage reached 5.9x EBITDA in 3Q 2017, reflecting the strong appetite for leveraged loans.

M&A Involves Increasingly Sophisticated Targets
More and more companies are being traded between sophisticated investors versus individuals, indicating the growing institutionalization of private markets worldwide. Target companies with institutional backing (PE or VC) made up 16.9% of M&A transactions, and another 3.8% of targets were publicly-traded when the deal was closed. Therefore, 79.1% of acquired companies were neither publicly traded nor had any sort of private backing. If this trend holds through to the end of the year, it will mark the first time that figure has dropped below 80% for a full year.

Financial Sponsors Represent Growing Share of M&A
Following two years of record-breaking deal making, strategic acquirers have taken a backseat in M&A in 2017, as they focus on integrating previous acquisitions into existing operations. Picking up the slack, PE investors accounted for 31% of all M&A transactions in 3Q – the highest proportion recorded in PitchBook's dataset. While strategic activity has waned, PE firms have been relatively resilient due to their limited investment timeframes, incentivizing them to deploy capital no matter the economic environment.  

Additional findings in this report include:

• Spotlight: Target Company Characteristics
• M&A by Sector & Size
• Spotlight: Energy, Materials & Resources
• Private Equity
• 3Q 2017 League Tables
• Methodology

To download the full report, click here. 

About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, New York and London and serves more than 12,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

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SOURCE PitchBook

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