2017 3q · pdf file · 2017-10-31would slowly taper its bond-buying program into...

M&AReport

20173Q

Credits & ContactPitchBook Data, Inc.

JOHN GABBERT Founder, CEO

ADLEY BOWDEN Vice President,

Market Development & Analysis

ContentDYLAN E. COX Analyst II

BRYAN HANSON Data Analyst II

ERIC MALONEY Graphic Designer

Contact PitchBook pitchbook.com

RESEARCH

[email protected]

EDITORIAL

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SALES

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COPYRIGHT © 2017 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Introduction 3

Overview 4-6

Spotlight: Target Company

Characteristics7

M&A by Sector & Size 8

Spotlight: Energy, Materials &

Resources9

Private Equity 10

Methodology 11

Contents

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2 PITCHBOOK 3Q 2017 M&A REPORT

A record for institut ional

backers—16.9% of all M& A Y TDIntroduction

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Key Takeaways

» After a record-setting 2016, M&A activity in North America and

Europe has totaled $1.4 trillion across 13,972 deals through 3Q 2017,

declines of 19% and 23% from the same period last year.

» The proportion of target companies that have institutional backing

(i.e. private equity or venture capital) at the time of acquisition has

risen to an all-time high of 16.9% of M&A. The trend reflects the

growing institutionalization of private markets, particularly in the

developed markets of North America and Europe.

» Amidst declining activity, M&A today increasingly involves larger

acquisition targets. The median transaction size has risen from $31.6

million in 2016 to $52.7 million through 3Q 2017, a 66% increase.

Rising valuations, platform roll-ups, and large cash reserves on

corporate balance sheets are all driving the increase in deal sizes.

Beginning last quarter, we revised our methodology for estimating total

deal flow. Through this and other recent methodology changes, we aim

to provide an even more accurate picture of the private markets. Please

see the methodology page for this report for more details.

We hope this report is useful in your practice. As always, feel free to send

any questions or comments to [email protected].

DYLAN E. COX

Analyst II


mailto:[email protected]

The M& A cycle subsidesOverview

A return to pre-2014 levels

M&A activity in North America & Europe

After a record-setting year in 2016,

M&A activity in North America and

Europe has totaled $1.4 trillion

across 13,972 deals through 3Q

2017, declines of 19% and 23% from

the same period last year. Through

3Q, M&A activity resembles

dealmaking during 2011 to 2013

more than it does the recent boom

from 2014 to 2016. Amid declining

volume, M&A today increasingly

involves larger acquisition targets.

The median transaction size has

risen from $31.6 million in 2016 to

$52.7 million through 3Q 2017, a

66% increase. Rising valuations,

large cash reserves on corporate

balance sheets, and platform

rollups resulting from PE add-ons

are all driving the increase in deal

sizes. No company seems too large

to be considered a target.

Cross-Atlantic deal flow continues

to be a more prominent feature

of today’s M&A landscape.

Through 3Q 2017, 6.6% of North

American deals involved European

acquirers and 9.4% of European

deals involved North American

acquirers, compared to 5.8% and

7.2%, respectively, in 2007. Two

key drivers of this trend include

the increasingly global nature of

trade and the broadening reach of

PE firms, many of which have now

established offices across the pond

from where they’re headquartered.

Source: PitchBook

*As of 9/30/2017

The median M&A transaction jumps 66% in size

Median M&A deal size ($M)

Source: PitchBook

*As of 9/30/2017

$2,1

31

$1,2

93

$720

$1,0

00

$1,1

31

$1,2

28

$1,3

23

$1,7

77

$2,2

20

$2,2

89

$1,3

64

18,13615,708

12,384

16,220

19,569 20,09119,874

23,48725,906

23,004

13,972

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Deal Value ($B) Es�mated Deal Value ($B)

Deal Count Es�mated Deal Count

$31.6

$52.7

$0

$10

$20

$30

$40

$50

$60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*


A slowdown despite some positive

signs

M&A activity in North America

totaled $925.3 billion across

7,348 transactions through 3Q

2017, 24.3% and 22.6% behind

the first three quarters of 2016.

The slowdown comes despite an

increase in CEO confidence—a

historical bellwether for M&A

activity—and a 14.2% increase

in the value of the S&P 500

(using total return) in the first

three quarters of 2017. Facing

the possibility of major tax and

healthcare reform this year, some

investors in the US have taken a

wait-and-see approach to M&A.

If dealmakers get more clarity

regarding potential changes to

either system, they will be more

likely to pursue deals.

While activity slowed in North

America, prices continued to rise.

The median EV/EBITDA multiple for

transactions completed through

3Q 2017 edged up to 10.6x—the

highest we’ve ever tracked. Easy

credit continues to fuel price

increases, with the median debt

usage jumping to 5.9x EBITDA

through 3Q 2017, comfortably

higher than any other year in our

dataset. Higher debt multiples

reflect the currently voracious

appetite for leveraged loans, with

new issuance volume on track to

surpass pre-financial crisis levels,

according to S&P LCD. Though

equity contributions have inched

downward to 4.8x EBITDA this year,

they also remain elevated on a

historical basis due to the elevated

pricing environment.

Dealmakers adopt a wait-and-see approach

North American M&A activity

Multiples remain highest tracked in North America

Median North American EV/EBITDA multiples

Source: PitchBook

*As of 9/30/2017. Deal counts are not estimated, as opposed to overall deal volume.

Source: PitchBook

*As of 9/30/2017

$1,3

24

$791

$523

$679

$693

$804

$794

$1,1

51

$1,4

77

$1,5

28

$925

9,9268,587

6,750

8,538

9,77410,786

10,373

12,96013,938

12,259

7,348

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Deal Value ($B) Deal Count

5.0x

4.3x

3.1x

4.6x

4.7x

4.2x 5.

0x

5.1x 5.3x

5.1x 5.

9x

3.5x

3.4x

3.4x

3.5x 3.

9x

3.8x 3.

3x 3.8x 4.

2x 5.1x 4.

8x

8.5x7.7x

6.4x

8.1x8.6x

8.0x 8.3x8.9x

9.5x10.2x

10.6x

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Debt/EBITDA Equity/EBITDA Valua�on/EBITDA


Europe resembles North America in

some respects

Similar to their North American

counterparts, European investors

have slowed their pace of

dealmaking this year. European

M&A activity totaled $438.95

billion across 5,810 transactions

through 3Q 2017, 19.8% and

32.2% behind the same period

last year. Following the UK’s vote

last year to leave the EU, would-

be acquirers feared that further

political disintegration was likely

if anti-establishment parties had

won elections in the Netherlands,

France, or Germany. While some

of these fears have abated, the

political situation in Europe

remains tenuous. At the same time,

the ECB faces the daunting task

of ending QE without impeding

growth. Recently, it indicated it

would slowly taper its bond-buying

program into 2018, assuaging

any fears of a sharp rise in

interest rates in the near term and

increasing the likelihood of strong

deal flow into next year.

After tapering off slightly in the

first two quarters of the year, the

median European EV/EBITDA

multiple rebounded to 10.8x in for

transactions completed in 3Q 2017,

bringing the European YTD median

to 10.0x, the highest in our dataset.

The rise in valuations can be

partially attributed to the booming

leveraged loan market, as well as

increased competition for a limited

number of acquisition targets

resulting from the eruption in M&A

activity during 2015 and 2016.

The M&A environment remains marked by caution

European M&A activity

Pricing pressures remain unabated

Median European EV/EBITDA multiples

Source: PitchBook

*As of 9/30/2017. Note: Since the penultimate edition of the M&A Report, a significant

update to the PitchBook Platform occurred, resulting in the addition of many financial

data points to our European figures. Hence, there will be significant changes between

these figures and those in prior editions of the M&A Report.

$806

$502

$197

$320

$437

$424

$530

$625

$743

$761

$439

8,2107,121

5,634

7,682

9,795

9,305

9,501

10,52711,968

10,745

5,810

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Deal Value ($B) Deal Count

4.6x

3.8x

3.0x 3.2x 3.6x

3.7x 4.

1x 4.9x

4.9x

4.5x 5.

4x

2.8x

3.4x

3.0x 3.

6x 3.8x

3.7x 3.2x

3.7x 4.0x 5.2x 4.

6x7.4x 7.3x

6.0x

6.8x7.4x 7.4x 7.3x

8.6x8.9x

9.7x 10.0x

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Debt/EBITDA Equity/EBITDA Valua�on/EBITDA

Source: PitchBook

*As of 9/30/2017. Deal counts are not estimated, as opposed to overall deal volume.


M& A targets are increasingly sophisticatedSpotlight: Target company characteristics

The proportion of target companies

that have institutional backing (i.e.

PE or VC) at the time of acquisition

has risen to an all-time high of

16.9%. Another 3.8% of targets

were publicly traded when the deal

was struck, the highest recorded

since 2009, leaving just 79.1% of

acquired companies that were

neither publicly traded nor had any

sort of private backing—the lowest

on record. If this trend continues

through the fourth quarter, it will

mark the first time the figure has

dropped below 80% for a full year.

In any case, the trend reflects

the growing institutionalization

Source: PitchBook

*As of 9/30/2017

of private markets worldwide.

Particularly in the developed

markets of North America and

Europe, companies are increasingly

traded not between individuals and

families, but rather sophisticated

investors.

Despite the recent appreciation

in price-to-earnings ratios and

continued de-listings in public

equities markets, publicly traded

firms have regained popularity

as acquisition targets in recent

years. As mentioned above, 3.8%

of M&A transactions this year have

targeted publicly traded firms,

up from 3.2% in 2016 and a low

of 2.2% in 2014 (including both

public and private acquirers). The

figure includes divestitures from

publicly traded firms, which are a

popular target for PE firms. That

publicly listed companies are being

acquired at a faster pace despite

higher prices illustrates that

acquirers are willing to pay top

dollar when there are fewer quality

targets available in the market.

Target companies are increasingly institutionalized

M&A activity (#) by target company financing status

10.2%

11.1%

5.3%

5.8%

3.2%3.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

PE-backed VC-backed Public


Materials & resources boosted by one deal

M&A activity ($) by sector

IT remains markedly resilient

M&A activity (#) by sector

A new high for the middle of the market

M&A activity (#) by deal size

High multiples evident in larger dealsM&A by sector & size

Source: PitchBook

*As of 9/30/2017

Source: PitchBook

*As of 9/30/2017

Sub-$500M activity dwindles

M&A activity ($) by deal size

Source: PitchBook

*As of 9/30/2017

Source: PitchBook

*As of 9/30/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017*

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017*

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M

0

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 2012 2013 2014 2015 2016 2017*

Materials & Resources IT

Healthcare Financial Services

Energy B2C

B2B

$0

$500

$1,000

$1,500

$2,000

$2,500

2010 2011 2012 2013 2014 2015 2016 2017*

Materials & Resources IT

Healthcare Financial Services

Energy B2C

B2B


Though overall M&A value has

decreased substantially through

the first three quarters of the

year, the energy and materials

& resources sectors have shown

substantial year-over-year (YoY)

growth. Deal value in the two

sectors has increased 14.7% and

121.6%, respectively, over the same

period last year.

Deal counts fall while value rises

M&A activity in energy, materials & resources

Benefit ing from mega-deals struck this yearSpotlight: Energy, materials & resources

Energy M&A has been bolstered

by a few large deals: Enbridge’s

$43.0 billion acquisition of pipeline

operator Spectra Energy and GE’s

$32.4 billion acquisition of oilfield

services firm Baker Hughes, both of

which are based in Houston. 2016

saw a decrease in the number of

completed oil & gas deals following

the crude oil price crash in mid-

2014, but decreasing break-even

prices and OPEC productions cuts

could spur a renewed appetite for

deals.

By far the largest deal to close in

the materials & resources sector

this year has been ChemChina’s

$44 billion acquisition of

agribusiness giant Syngenta.

The deal is thought to provide

additional food security to China’s

growing middle class, and comes

just after the announcement of two

other agribusiness mega-deals:

Bayer’s acquisition of Monsanto

and the merger of industry giants

DuPont and Dow Chemical.

599

460

0

200

400

600

800

1,000

1,200

1,400

$0

$50

$100

$150

$200

$250

$300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Materials & Resources Deal Value ($B) Energy Deal Value ($B)

Materials & Resources Deal Count Energy Deal Count

Source: PitchBook

*As of 9/30/2017


Financial sponsors increasingly contribute to overall M& APrivate equity

As we’ve noted for the last

couple quarters, PE deals now

represent a larger portion of

the M&A landscape. Financial

sponsors accounted for 31.4% of

all transactions in 3Q 2017, the

highest proportion in our dataset.

The increase is attributable to both

the waning activity from strategic

acquirers in recent quarters, as

well as the relative resilience of

PE deal flow following years of

strong fundraising. Strategics, as

previously mentioned, have slowed

their pace of acquisition as they

integrate new acquisitions into

existing operations following two

years of record-setting M&A. PE

firms, on the other hand, must

return capital to limited partners

(LPs) within a set timeframe, which

creates incentivizes to deploy

capital no matter the economic

environment.

However, a limited timeframe is

not the only factor driving PE’s

influence in M&A. Returns for PE

funds have outpaced most other

asset classes in recent years, and

LPs increasingly see the private

markets as a way to make up for

returns shortfalls in other asset

classes and diversify their equity

holdings. As more capital has

been allocated to the asset class,

the count of companies backed

by PE (aka “company inventory”)

has ballooned in recent years, as

has AUM. As a result, secondary

buyouts have become a more

common way for PE firms to exit

their investments. They accounted

for 52.6% of M&A transactions

stemming from the sale of a PE-

backed company through 3Q 2017,

the highest proportion on record.

Closing in on a third of all M&A activity

M&A (#) by acquirer type

Source: PitchBook

PE-backed exit activity (#) by type

31.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2013 2014 2015 2016 2017

Sponsor-backed Corporate M&A Sponsor-backed %

196

202 24

5

278

227

252

290

298

305

274

276

310

269

303

276

283

293

257

217

262

224 27

3 283

288 28

4 296 32

5

329

332

364 38

9

316 31

5

285

305

245

243

203

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2013 2014 2015 2016 2017

Secondary Buyout Strategic Acquisi�on

Source: PitchBook


Methodology

Deal Flow Estimation

Due to the nature of private market

data, information often does not

become available until well after a

transaction takes place. To provide

the most accurate data possible,

we estimate how much of this new

information will become available

in the next quarter by calculating

the average percentage change in

deal flow from the first to second

reporting cycle over the trailing 24

months. We then add this estimate

to the reported figure for the most

recent quarter. Both the original

reported figure and the estimated

figure are provided for your

reference.

Note: Corporate asset purchases

were not considered an eligible

transaction type until the 2Q 2017

edition of this report. As such,

some historical deal flow figures

will have shifted beginning at this

time.

M&A is defined as the substantive

transfer of control or ownership.

We track only completed control

transactions. Eligible transaction

types include control acquisitions,

leveraged buyouts (including

asset acquisitions), corporate

divestitures, corporate asset

purchases, reverse mergers, spin-

offs, and asset divestitures.

• Debt restructuring or any other

liquidity, self-tenders (in which

a company undertakes an offer

for a typically limited number

of its own shares to ward off

a hostile takeover) or internal

reorganizations are not included

• The target company (the

entity being acquired) must be

headquartered in either North

America or Europe

• Announced, rumored or canceled

deals are not included

• Aggregate transaction value is

not extrapolated using known deal

values, unless otherwise noted as

estimated

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2017 3q · pdf file · 2017-10-31would slowly taper its bond-buying program into...

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