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Mega-Deals Dominate M&A Activity in the First Three Quarters of 2016

October 27, 2016

Mega-Deals Dominate M&A Activity in the First Three Quarters of 2016

PitchBook Releases 3Q 2016 M&A Report

SEATTLE — October 27, 2016 — Through the third quarter of 2016, more mega-deals - transactions valued at $10 billion or more - were completed than in all of 2015 or 2014, according to recent analysis conducted by PitchBook Data. In the first three quarters, 31 deals at this size were completed, compared to 23 in the entirety of 2015 and just 16 in all of 2014. Notable transactions in 2016 so far include InBev’s $113 billion acquisition of SABMiller, Charter Communications’ $79 billion acquisition of Time Warner Cable, and Dell’s $60 billion take-private of EMC. The uptick in mega-deals and growing median deal size indicate that corporate acquirers are willing to pay a higher premium for quality companies, driving up prices and increasing competition in the market.  


M&A value hits $1.7 trillion in 2016 despite declining deal counts

Despite a continued decline in the number of completed U.S. and European M&A transactions in the third quarter of 2016, overall deal value remained elevated. The first three quarters of 2016 saw 13,121 deals completed, representing a 25% year-over-year drop from last year’s count of 17,504. However, the total value of M&A deals through the third quarter amounted to a massive $1.7 trillion, representing a 10% increase over the same period last year.


Median valuations increase while deal size doubles quarter-over-quarter

Median valuation/EBITDA multiples last quarter jumped to 10.0X from just 9.1X in the second quarter. Further, median deal sizes also doubled to roughly $210 million during that same period. These moves are indicative of the increase in M&A transactions across the IT and healthcare sectors (which tend to trade at higher valuations), renewed interest in public companies as acquisition targets, and a record amount of capital on the books of PE shops and strategic acquirers.


In the third quarter, 893 transactions were completed in the IT and healthcare sectors, totaling $190.3 billion, or 41% of total M&A deal value. Historically, deals in IT and healthcare are more expensive, as evidenced by Pfizer’s $14 billion acquisition of Medivation and the $60 billion acquisition of EMC by Dell.

“In an environment where organic revenue and earnings growth remains challenging, acquirers are increasingly looking to large, transformative acquisition targets,” said Nizar Tarhuni, senior analyst at PitchBook. “As a result, competition remains high and buyers must pay a higher premium to appeal to the large shareholder bases of these publicly traded companies. Subsequently, prices have been driven up in the M&A market.”


Moreover, private equity firms and corporate acquirers alike have a record amount of cash on hand. Private equity dry powder sits at $749.4 billion, and U.S. companies’ cash pile amounts to an unprecedented $1.7 trillion, meaning these acquirers are willing to enter into bidding wars and ultimately pay higher multiples on transactions. Recent examples include the prices for both Marriott’s recent acquisition of Starwood Hotels and Resorts and Microsoft’s acquisition of LinkedIn, which were both hiked by bidding wars from other acquirers.


Additional findings in this report include:

  • M&A by sector and size
  • Spotlight on B2C deals
  • Spotlight on IT deals
  • Private equity deals
  • 3Q 2016 league tables


Dowload the full report here.

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