Global Political Turmoil Stifled M&A Activity in Q1, Recording the Worst Quarter Since 2010
April 27, 2017PitchBook Report Finds M&A Activity Stalled as Europe Awaits Critical Election Outcomes; Meanwhile the Tech Industry Remains Bastion of Stability for M&A
SEATTLE – April 27, 2017 – Global M&A activity slowed significantly in the first quarter of 2017, according to PitchBook’s Q1 2017 Global M&A Report. In the first quarter, just 3,785 deals were completed with a total value of $385 billion. At the same time, global EBITDA multiples fell to 8.4x, the lowest figure recorded since early 2014. Much of this downturn can be traced back to growing political uncertainty, particularly in Europe. Despite a decline in global deal value, M&A activity remained relatively high on a historical basis, recording levels on par with those tracked in 2014. Much of this activity can be credited to the technology industry, which accounted for one fifth of all M&A transactions in the U.S. and Europe during the first quarter.
“On the heels of an active 2016, global M&A struggled in the first quarter with Europe seeing the harshest decline in activity. We expect to continue seeing low deal volumes in the region as investors hold their breath for the French Presidential election in May. Elsewhere, the U.S. experienced strong stock market performance in Q1, which pushed M&A multiples higher. But investors face a supply and demand problem. With deeper pockets but fewer investment opportunities, prices are continuing to hike, making capital deployment even more challenging.”
Europe Braces for Heightened Deal Complexity Amid Political Uncertainty
While the expected economic fallout from Brexit has yet to come to fruition, Europe’s deal-making landscape hit a decade low as wary investors awaited the outcome of the recent Dutch election and ongoing French Presidential election. This uncertainty played a key role in driving median EBITDA multiples down from 8.4x in 2016 to 7.5x in the first quarter of 2017. What’s more, European M&A deal value nearly halved quarter-over-quarter (QoQ) to just $103 billion, while deal volume held steady at 1,673 completed transactions. Looking ahead, recent European earnings growth is expected to help offset the decline in M&A activity and provide a healthier cash flow for corporate sponsors to become more active in deal making.
U.S. Stability Inspires Investor Confidence
A stark contrast to the rest of the world, U.S. investors remained optimistic in Q1 2017. In the first quarter, 1,899 deals were completed in the U.S., $265.1 billion. At the same time, U.S. companies remain in high demand, as evidenced by a rise in median EBITDA multiples, which jumped to 10.8x in Q1 from 10.2x in Q4 2016. This increase in value will likely continue driving the trend of lower deal volumes and activity for higher price tags. Coupled with the modest interest rate hikes implemented by the Federal Reserve, financing continues to remain cheap for corporate and financial sponsors, further contributing to market optimism.
Deal Flow Across Tech Sector Gains Momentum
Technology companies now make up a larger portion of the world economy and accounted for nearly one-fifth of M&A transactions in the US and Europe, the highest proportion of any quarter since at least 2010. The steady increase in this sector’s deal volume is aided by the flood of both business and consumer facing companies that can be classified as ‘tech’. Private equity firms have been especially interested in tech recently. PE acquisitions made up more than a quarter (28.4%) of all IT M&A in the first quarter. Exemplifying this trend are KKR’s $2 billion buyout of Optiv Security and Vista Equity’s $850 million LBO of Sungard’s public sector assets.
Additional findings in this report include:
- M&A by sector and size
- Spotlight: B2C
- Spotlight: IT
- Spotlight: Energy
- Spotlight: Equity
- Q1 2017 League Tables
Download the full report here: http://reports.pitchbook.com/1q-2017-ma-report/
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Bailey Fox and Nick McDonald