Despite Diverging Regional M&A Deal Activity, Global EV/EBITDA Multiples Rose; Private Equity Helped Drive Deal Value While Increasing Proportional Activity in Take-Privates and Carve Out Transactions

PitchBook, the premier data provider for the private and public equity markets, today released its 3Q 2018 Global M&A Report, which found M&A deal activity remained robust through the third quarter of 2018, with 15,349 completed deals worth a combined $2.4 trillion. While both M&A counts (12.0%) and deal value (7.5%) declined from the same period in 2017, North American M&A accounted for the highest proportion of deal value in over a decade at 64.4%. Overseas, European M&A activity receded, most likely due to lingering concerns over Brexit and mounting trade tensions. Other notable trends observed in 3Q 2018 were private equity’s growing share of M&A activity as well as deceleration within the oil and gas sector. The increase in private lending funds and leveraged loan issuance provided easy financing for private equity investors, who are continuing to pursue larger and more frequent LBOs and large multi-sponsor buyouts, or club deals. Additionally, the oil and gas sector experienced a 49% decline in deal value coming off a record-setting 2017 in terms of M&A deal value, despite the oil price recovery.

“Global M&A activity remains healthy as North American dealmaking overcomes the weakness occurring in Europe, where a slowdown is underway,” said Wylie Fernyhough, PE analyst at PitchBook. “Financing remains historically cheap and companies have shown an appetite for expansion via acquisitions as the economic expansion extends another year.”

Global M&A Activity

  • North American M&A activity slowed with a total of 8,683 transactions closed totaling $1.5 trillion, representing year-over-year decreases of 9.0% and 8.2%, respectively. Despite the slowdown, nine of the 10 largest deals announced or in progress target North American companies.
  • European M&A has seen 5,646 transactions close valued at $809.1 billion through 3Q 2018 —down from 7,973 completed deals totaling $1.0 trillion recorded through the same period in 2017—representing year-over-year decreases of 29.2% and 20.0%, respectively.
  • Global median M&A EV/EBITDA multiples grew from 9.1x in 2017 to 9.3x at the end of 3Q. Although European M&A activity decelerated, EV/EBITDA multiples in the region rose to 9.3x, up from 8.7x in 2017. Multiples in that region are expanding for the third consecutive year.

Private Equity M&A Activity

  • Year-to-date, PE firms accounted for 33.3% of global M&A activity, up from 30.3% through the first three quarters of 2017. A favorable lending environment, coupled with strong fundraising for the strategy, has allowed the inventory of PE-backed companies to swell fivefold since 2000.
  • PE buyers (buyout/LBO) made up 29.4% of take-private deals YTD, up from 21.9% recorded in 2016, yet still far below the post-crisis peak of 48.1% in 2011.
  • Similar to take-private deals, the proportion of carve-outs or divestitures activity completed by PE firms has risen in recent years. The increase in shareholder “activists”, coupled with ample PE dry powder is expected to continue fueling carve-out transactions.

Spotlight: Oil & Gas

  • Following a record-setting 2017 in terms of M&A deal value, dealmaking in the oil & gas sector has slackened. Through the first three quarters of the year, oil & gas companies underwent 350 M&A deals valued at a combined $125.6 billion – decreases of 23.6% and 49.1%, respectively, from the same period in 2017.
  • Oil prices – which are a major driver of company value – are at their highest point since 4Q 2014, however, deal count and value are on pace to drop by approximately one-half and one-third, respectively, compared to 2017.
  • PE accounted for a sizable portion of oil & gas M&A over the last few years, with oil & gas gas funds raising $96.8 billion across 92 funds between 2013 and 2015. More recently, oil & gas fundraising has declined – averaging just $12.3 billion annually across a combined 31 funds in 2016 and 2017.

Additional coverage in this report includes:

  • Key takeaways
  • Overview
  • Deals by size & sector
  • Spotlight: Oil & gas
  • Spotlight: Corporate rounds

Download the full report here.