SEATTLE, NEW YORK, SAN FRANCISCO, LONDON – January 25, 2018 – M&A activity in North America and Europe totaled $2.93 trillion across 19,510 deals in 2017, according to the 2017 PitchBook M&A Report. Following a record-breaking year in 2016, deal making got off to a slow start in 2017 due to global political uncertainty, but finished strong as the fourth consecutive year with at least $2.9 trillion in M&A value. Activity revealed dealmakers pursued fewer, larger deals throughout 2017 as evidenced by the 16.8% decline in deal volume, yet 33.3% increase in median deal size – $40 million by the end of 2017. This trend was driven by high cash reserves on corporate balance sheets, ever-growing PE fund sizes and increased access to affordable financing. Despite the isolationist sentiment displayed in some western nations, 2017 saw an uptick in cross-border deals. The percentage of North American and European deals completed by acquirers outside those respective regions rose to the highest levels on record. Looking ahead, the M&A market is expected to continue thriving in 2018 as acquisitions are viewed as a more efficient way to boost revenue and earnings in today’s environment.
“Coming off a record year for M&A in 2016, dealmakers continued their rapid pace, taking advantage of affordable financing opportunities amidst higher valuations in 2017,” said Dylan Cox, Analyst II at PitchBook. “While strategic acquirers have tapped the brakes, financial sponsors remain active as they seek to deploy the vast sums of dry powder accumulated in recent years. The technology sector continues to be a beacon of stability in M&A markets – accounting for 17.8% of all transactions.”
Despite Declines, Global M&A Activity Remains Healthy
M&A activity in North America totaled $1.80 trillion across 10,465 deals in 2017— trailing a record-breaking 2016 by 16.0% and 16.1%, respectively. Meanwhile, across the Atlantic, European M&A totaled $1.04 trillion across 8,188 deals in 2017— also down 25.4% and 19.4% from 2016, respectively. While activity declined overall year-over-year, 2017 M&A remained strong on a historical basis. The healthy dealmaking environment was primarily driven by larger deal sizes, in turn aided by high cash on corporate balance sheets, swelling PE funds and easy access to affordable debt financing. Consequently, this overflow of available capital has put upward pressure on price multiples globally. The median valuation/ EBITDA multiple for North American M&A transactions reached 10.3x in 2017, up slightly from the 10.2x recorded in 2016. In Europe, valuation multiples reached the highest level on record—7.5x EBITDA in 2017. In both regions, M&A activity is expected to continue at a steady pace, boosted by tax legislation and repatriation of foreign earnings in North America, and prolonged quantitative easing in Europe.
Cross-Border Deal Flow in Vogue
The percentage of North American and European deals completed by acquirers headquartered outside of those regions reached 8.9% and 12.3%, respectively—the highest levels on record. Chief among the reasons for the increase is companies’ desire to expand their global footprint in today’s dynamic economic environment. Interestingly, despite a down year for deal flow, German investors acquired 100 North American companies in 2017, a new record for German investment into the region. The lion’s share of these transactions was in U.S.-based organizations, which offer higher yield potentials thanks to relatively strong U.S. GDP growth in 2017.
Technology M&A, More Resilient Than Any Other
Acquisitions of technology companies accounted for a record 17.8% of all M&A deals in 2017, representing a full two percentage points higher than that of 2016. In absolute terms, the number of IT acquisitions decreased by 10.3%, however this was the smallest decrease seen by any sector. This resiliency can be attributed to several factors, including that non-tech incumbents are using these transactions to adapt to changing distribution channels and consumer preferences. Two deals completed in 2017 fall in line with this trend – PetSmart’s $3.35 billion acquisition of internet-native chewy.com and Ikea’s acquisition of TaskRabbit, an online marketplace for outsourcing tasks.
Additional coverage in this report includes:
- Key Takeaways
- North America
- M&A by Sector & Size
- Spotlight: Cross-border activity
- Spotlight: Institutionalization of M&A Markets
Download the full report here.
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