2015 On Pace For All-Time Record In M&A Value

2015 On Pace For All-Time Record In M&A Value by PitchBook

Introduction

As the year winds down and more and more data rolls in, we are keeping a close eye on the pace of mergers and acquisitions to see if 2015 can trump 2014’s record of overall deal value. Even though the fourth quarter could still produce some surprises, it is almost certain it will eclipse $145 billion in total deal value. If it does, we will surpass the mammoth tally of $1.5 trillion recorded last year. The total value of transactions closed in 3Q was down from each of the first two quarters of the year, but even if 4Q turns in only $323 billion in total deal value—the total value recorded in 1Q 2014—2015 will have seen a truly gargantuan $1.7 trillion across closed deals alone.

What’s interesting about that figure, apart from its breathtaking size, is that it will occur even as overall activity is sliding, albeit gently. The elevated price levels that produced the tremendous swell in aggregate deal value over the past year and a half was bound to lead to diminishing activity, eventually. Volatility sparked by a series of events including, most recently, the slowdown in Chinese growth, hasn’t helped matters, although the duration of such choppiness is still a matter for debate. Accordingly, the optimism and consequently appetite of dealmakers may be whetted once more. In addition, the contribution of private equity investors to overall M&A numbers remains somewhat uncertain as well. The PE industry is experiencing the unique pressures of having more capital than ever before to dispense, along with the necessity of having to do so while measuring up to prior outperformance of public markets, even as public equities remain quite lofty. In short, even if the wave of M&A appears to be cresting, there are plenty of variables that could keep it at an elevated level or accentuate the recent slackening further.

Overview

M&A

M&A across North America and Europe has remained highly active overall, even as things have leveled off somewhat in the past few quarters. After such heightened numbers, a decline wasn’t unexpected. Last quarter generated just over $437 billion in completed M&A transaction value across 4,494 deals, a drop from the $526 billion invested across more than 5,000 closings in 1Q 2015. Median deal sizes are up across the board and valuation multiples are still elevated, propping up capital invested figures and keeping the strategic exit ramp open for financial backers looking to offload businesses amidst global growth concerns. On a QoQ basis, overall median deal size was up 25%, while PE-backed add-ons alone were up over 100% and traditional platform buyouts 9%. The median 3Q valuation-to-EBITDA multiple came in at a high 8.5x, as well, greater than any other quarter last year. As we’ve noticed a paring back in terms of deal multiples in recent quarters, transactions such as the colossal Kraft-Heinz combination or the $8.5 billion Dollar Tree-Family Dollar merger that closed in July helped skew multiples higher for the quarter, while also significantly underpinning total invested capital.

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