M&A Report - PitchBook€¦ · Source: PitchBook Source: PitchBook Debt usage stays low Median debt...

M&AReport

2016Annual

Credits & ContactPitchBook Data, Inc.

JOHN GABBERT Founder, CEO

ADLEY BOWDEN Vice President,

Market Development & Analysis

ContentNIZAR TARHUNI Senior Analyst

DYLAN E. COX Analyst

KYLE STANFORD Publisher

BRYAN HANSON Data Analyst

JENNIFER SAM Senior Graphic Designer

Contact PitchBook pitchbook.com

RESEARCH

[email protected]

EDITORIAL

[email protected]

SALES

[email protected]

COPYRIGHT © 2017 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Introduction 3

Overview 4-6

M&A by sector & size 7

Spotlight: B2C 8

Spotlight: IT 9

Spotlight: Healthcare 10

Private equity 11-12

Methodology 13

Contents

The PitchBook PlatformThe data in this report comes from the PitchBook Platform–our data software for

VC, PE and M&A. Contact [email protected] to request a free trial.

2 PITCHBOOK 2016 ANNUAL M&A REPORT

More than $2 .1 trillion spent on 2016 M& AIntroduction

Over the past half-decade, we’ve experienced a financial and strategic-buyer profile that has pressed forward with deals

unaffected by the global political, economic and market risks that populate our news feeds on a daily basis. More than

100,000 M&A deals have been completed over that timeframe and despite transactions only becoming increasingly

expensive, enough deals were completed last year to place 2016 deal value at the highest level we’ve ever seen ($2.1

trillion+). That figure becomes even more pronounced given it was spread across considerably fewer deals than what we

saw in the two years preceding 2016. As corporates sit on piles of unused cash that in turn depress ROIC figures, 2016 saw

strategics put money to work in some of the largest deals we’ve ever seen. In the face of increased antitrust concerns and

a slew of potential policy impacts from a new administration, executives continued to bet big. As we move into the new

year, deal volume will likely retract given both the amount of consolidation we’ve already seen from corporate M&A, and

the volume of newly purchased inventory from private equity. That said, the corporate need to drive returns on capital

(i.e. excess cash) and the PE need to generate returns at the fund level will still be present. We anticipate that this notion,

coupled with the availability of capital for both parties, will likely keep transaction sizes large in 2017.

We hope this report is useful in your practice. Please feel free to contact us at [email protected] with any questions.

NIZAR TARHUNI

Senior Analyst

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mailto:reports%40pitchbook.com?subject=2Q%202016%20US%20PE%20Breakdown

Despite decline in activity, M& A deal value continues strongOverview

Deal activity declines for fourth consecutive quarter

M&A activity by quarter

Source: PitchBook

Does a poor economic outlook hurt or

help M&A initiatives?

Between the beginning of 2010 and

2013, M&A activity across North

America and Europe remained

relatively flat. Widespread economic

concerns, including the US fiscal

cliff following the 2012 presidential

election and the continued European

struggle to recover following the debt

debacle of a couple years prior, helped

create a complicated environment for

M&A. While those events could have

deterred dealmakers from embarking

on an aggressive acquisition path,

there is always going to be concern

around the global economic outlook.

2016 should have been no different.

The World Bank estimates that 2016

global GDP will have grown at the

slowest pace since the financial crisis,

yet aggregate M&A value will likely

come in at the highest level we’ve

seen once we retroactively fill in the

$199

$229

$282

$241

$189

$401

$267

$265

$259

$311

$269

$365

$257

$342

$299

$382

$327

$387

$435

$530

$597

$454

$507

$619

$588

$570

$508

$474

3,686

4,389 4,583 4,633

4,526

5,150

4,4444,873

5,675

5,1975,757

6,062

4,958

3,081

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2010 2011 2012 2013 2014 2015 2016

Deal Value ($B) Deal Count

$22

$24

$26

$25

$32

$30

$36

$224

$225 $2

47 $284 $3

14

$373

$508

2010 2011 2012 2013 2014 2015 2016

Median Average

2016 average M&A deal value more than doubles 2012 value

Median and average M&A deal value ($M)

Source: PitchBook


Source: PitchBook

Source: PitchBook

Debt usage stays low

Median debt & equity percentages of M&A

datasets over the next quarter. The

point is, the macro uncertainties that

seemed to plague or at least not

encourage dealmaking between 2010

and 2014 have been swapped with

new worries, but dealmakers have

taken the current landscape as their

cue to spend and ostensibly build

more comprehensive and recession-

proof businesses. 2016 may have seen

transaction volume drop off relative to

the peaks we’ve experienced over the

last two years, but whereas the years

between 2010 to 2014 saw a significant

proportion of M&A come from smaller,

middle-market deals, 2016 saw the

mega-deal featured front and center.

Spend it while you have it

$2.1 trillion worth of M&A was

completed in 2016 across 18,344

transactions, reflecting a total deal

value figure that is relatively flat to

what we saw in 2015, yet through a

transaction count that decreased by

more than 23%. As we continue to

collect data, each of the above figures

will rise, and with that, we estimate that

2016 will have registered the most M&A

in terms of total deal value we’ve ever

recorded.

On a quarterly basis, activity continued

to follow the overarching trends of

deal markets we cover—whether that

be PE, VC or general M&A—with the

pace of activity moving consistently

lower in a noticeable way. In fact, just

$474 billion worth of deals closed in

4Q across 3,081 transactions, reflecting

year-over-year declines of 23% and

49%, respectively. The rather dramatic

drop off in those figures alone could

drive some concern for dealmakers

and service providers. However, the

volume and amount of announced

transactions during that period

provides some assurance around the

continued appetite for deals within

the market. Just shy of $900 billion

worth of M&A was announced during

2H 2016 that has yet to close (1,534

transactions), with 4Q 2016 accounting

for roughly $626 billion. And thus far

into the first quarter of 2017, we’ve

already seen roughly $98 billion worth

of M&A announced.

Dealmakers remained bold in terms

of the size of transactions they were

seeking to complete last year. The

median deal size across all M&A in

2016 came in at $36 million, reflecting

a nearly 21% YoY jump, and a 65% jump

compared to what we saw in 2010.

Further highlighting the presence

of mega transactions underpinning

total deal value, the average deal size

came to $508 million last year, a 36%

jump over 2015 and a whopping 127%

increase relative to what we saw in

2010. More than 54% of all M&A value

came from transactions valued at

$5 billion or more, by far the largest

proportion we’ve seen from such deals

since at least 2010. For reference, less

than 45% of 2015 deal value came

from deals that large, with just 33%

of deal value coming from $5 billion+

transactions in 2010.

Equity contributions rise as multiples 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q2013 2014 2015 2016

Debt % Equity %

3.9x 4.

5x

4.0x 4.3x 4.

9x

4.9x

4.6x

3.4x 3.

7x

3.7x

3.1x

3.7x 4.1x

4.6x

7.3x

8.2x7.7x 7.4x

8.6x 9.0x 9.2x

0x

2x

4x

6x

8x

10x

2010 2011 2012 2013 2014 2015 2016

Debt/EBITDA Equity/EBITDA Valua�on/EBITDA

Valuation-to-EBITDA ratios continues growth

Median EBITDA multiples


M&A transaction multiples

Source: PitchBook. Note: Any discrepancy between total valuation and debt/equity figures is due to rounding.

3.2x 3.

9x 4.5x

3.9x

3.8x 4.

9x

4.4x

4.1x

3.8x 4.1x

4.3x

4.0x 4.5x

4.1x

4.0x 4.6x 5.0x

4.9x

4.2x 4.

9x

4.4x 4.8x 5.0x 5.4x

4.2x 4.5x 4.8x 5.0x

4.0x 2.9x 3.

3x

3.6x

3.8x

3.7x

4.4x

3.5x

3.8x 3.5x 4.

1x

3.5x 2.8x

2.7x 3.2x 3.

5x 3.7x

3.0x

4.3x 3.

8x

4.4x

3.6x 4.

1x 3.8x

4.2x 4.

7x 4.7x 4.8x7.2x6.9x

7.7x 7.5x 7.6x8.6x8.8x

7.5x7.6x 7.6x8.3x

7.5x7.3x 6.7x

7.3x8.0x

8.7x7.9x

8.5x 8.7x 8.8x8.4x

9.1x 9.2x8.4x

9.2x 9.5x 9.8x

0x

2x

4x

6x

8x

10x


2010 2011 2012 2013 2014 2015 2016

Debt/EBITDA Equity/EBITDA Valua�on/EBITDA

M&A activity in EuropeM&A activity in North America

$643

$652

$799

$744

$1,0

87

$1,4

96

$1,3

95

7,929

9,139

10,148

9,697

12,02112,832

9,801

2010 2011 2012 2013 2014 2015 2016

Deal Value ($B)

Deal Count

Source: PitchBook

$308

$471

$404

$536

$593

$681

$746

7,263

9,302

8,841 8,9989,886

11,087

8,543

2010 2011 2012 2013 2014 2015 2016


Source: PitchBook

do the same

The S&P 500 (ex-financials) cash and

short-term investments balance hit a

10-year high in 3Q 2016 ($1.54 trillion)

according to FactSet. As corporates

continue to sit on piles of cash ready

to be put to work, equity contributions

registered the highest level seen since

2010, at nearly 50%. On an absolute

basis, debt remains cheap, but the

combination of inflated equity prices

and the excess of cash on corporate

books allows strategics to move rather

swiftly to get deals done. Further,

issuing an excessive amount of debt

to fund deals can have an adverse

effect on credit ratings, an outcome

that many would like to avoid in order

to remain in good standing with the

capital markets. For pressured sectors

such as energy, traditional debt

packages to fund consolidation could

be dangerous (and tough to get), as

many companies could be floating

in risky territories and need to avoid

tripping certain covenants on existing

debt, the result of which could also be

propping up the equity contributions

seen in recent M&A.

At 9.2x, the median valuation-to-

EBITDA multiple in 2016 came in at

the highest level we’ve seen since

at least 2010. In fact, that number

registers two turns higher than what

we saw roughly six years ago. In a deal

landscape comprised of both record

PE dry powder and corporate access

to capital, competition has remained

fierce and continues to drive pricing.

Further, as the S&P 500 trades at an

ever-loftier price-to-earnings ratio, any

acquisition premium above the current

market cap of public companies will

only cause competed deals to remain

fairly expensive.


M&A activity ($) by sector

M&A deals ($) by deal size

M&A activity (#) by sector

M&A deals (#) by deal size

Source: PitchBook

More than 80% of M&A deal value was derived from deals with a minimum EV of $1 billion

B2C deals represent more than 40% of 4Q deal value

Overall values slide higher throughout yearM&A by sector & size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2013 2014 2015 2016

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

Materials &Resources

IT

Healthcare

FinancialServices

Energy

B2C

B2B

Source: PitchBook 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

Materials &Resources

IT

Healthcare

FinancialServices

Energy

B2C

B2B

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M


$49

$60

$61

$96

$51

$87

$112

$84

$89

$92

$139

$55

$92

$146

$104

$216

1,012

1,005

1,006

987

1,252

1,2291,132

1,058

1,2911,310

1,360

1,3261,287

1,002892

585


2013 2014 2015 2016


Mega-deals fuel B2CSpotlight: B2C

B2C deal flow sees major decline in 2016

B2C activity by quarter

Source: PitchBook

Source: PitchBook

The single largest M&A transaction to

close in 2016 was in the B2C sector:

Anheuser-Busch InBev’s £79 billion

acquisition of SABMiller. The deal

will give the combined company

an estimated 46% of global beer

profits and 27% of global volume,

according to the Wall Street Journal.

This acquisition—mostly a move to

gain market share in the developing

economies of Africa and South

America—exemplifies the increasingly

global nature of the M&A market

(particularly in consumer products)

despite the increasingly populist

rhetoric of many western countries.

Due in large part to the major

consolidation in the beer industry, M&A

deal value in the B2C sector totaled

$557.7 billion in 2016, representing a

49% increase over the previous year.

Even if we disregard the AB InBev

transaction, however, M&A value would

have increased by a healthy 18.9% YoY.

Other large deals in the sector include

Charter Communications’ $78.8 billion

acquisition of Time Warner Cable and

the $15 billion take-private of Keurig

Green Mountain by a consortium of

financial and strategic buyers.

The overall decrease in number of

transactions and increase in median

and average deal size in this sector

reflect the broader M&A market. The

median B2C deal size grew by $5

million in 2016, up to $40 million,

while the average deal for the year

more than doubled to $637 million.

Fewer but larger deals are being

completed as companies strive to have

a consumer-facing brand just about

anywhere in the world their products

could be bought and sold.

Average & median B2C deal size ($M) B2C M&A (#) by acquirer type

Source: PitchBook

0

200

400

600

800

1,000

1,200

1,400

1,600


2013 2014 2015 2016

Sponsor-backed Corporate M&A

$23

$22

$24

$43

$27

$43

$30

$43

$38

$37

$38

$24

$28

$52

$39

$60

$258

$279

$275 $3

80

$208 $2

82

$420

$314

$331

$318 $4

10

$179

$342

$623

$468

$1,4

46


2013 2014 2015 2016

Median Average


IT M& A shows strongest sector per formanceSpotlight: IT

IT deal activity unable to keep pace with past couple years

IT activity by quarter

Average & median IT deal size ($M)

Source: PitchBook

Source: PitchBook

Last quarter, we reported that M&A

value in the IT sector was ahead of last

year’s pace by 169%. Since then, tech

M&A activity has slowed considerably,

but still showed strong performance

on an annual basis. Deal activity

totaled $426.3 billion across 3,060

transactions in 2016, representing a

68.2% increase and 13.6% decrease,

respectively. The top three tech deals

by size in 2016 were all acquisitions

of public companies: Dell’s $60

billion take-private of EMC, Avago

Technologies’ $37 billion acquisition of

competitor Broadcom and SoftBank’s

£24 billion acquisition of ARM

Holdings.

Similarly to the B2C industry, both the

median and average deal size in the

IT sector increased substantially last

year, to $29 million and $647 million,

respectively. Meanwhile, the number of

deals completed fell by 13.6% YoY. At

first, this figure may sound rather glum,

but in fact it represents the smallest

YoY decrease in terms of deal flow by

any sector.

That the IT sector has seen relative

success last year comes as a surprise

to nobody. Large IT companies now

dominate our headlines, political

campaigns, shopping habits and social

interactions. The industry, like others

before it, has probably already seen

its most explosive years in terms of

growth. Next comes consolidation and

jockeying for market share as industry

giants transition from the role of

disruptor to that of dealmaker.

$14

$46

$66

$88

$29

$98

$44

$141

$41

$53

$46

$113

$135

$99

$140

$53

677693

642

726 789 830

773 790

911

805

899 927876 871

736

577


2013 2014 2015 2016


IT M&A (#) by acquirer type

Source: PitchBook

$17

$23

$24

$28

$24

$23

$25

$30

$22

$20

$29

$35

$29

$23

$36

$29$9

6

$263

$379 $4

38

$166

$519

$258

$632

$176

$259

$203

$448

$700

$526

$851

$462


2013 2014 2015 2016

Median Average

0

100

200

300

400

500

600

700

800

900

1,000


2013 2014 2015 2016

Sponsor-backedCorporate M&A


$16

$22

$37

$30

$67

$28

$79

$51

$229

$95

$106

$53

$61

$77

$50

$48

394

365

408 411

521

462

520

477

571

529

615 597548

497

416

293


2013 2014 2015 2016


Healthcare activity in midst of major slideSpotlight: Healthcare

Average & median healthcare deal size ($M)

Source: PitchBook

After a very strong 2015, the value

of M&A activity in the healthcare

sector more than halved last year to

$236.2 billion. The downturn was more

pronounced in Europe, which saw a

70.6% decrease in value, than it was in

North America, which experienced just

a 44.1% downturn. These markets are,

of course, very different.

Healthcare costs in the US are well-

known to be far above those of any

other developed nation. Under the

Affordable Care Act, more people

became insured, yet premiums

increased for many. Meanwhile, new

legislation has been proposed that

would effectively repeal the ACA,

yet nobody knows for sure how the

politics and mechanics of the situation

will play out. That leaves companies

in the healthcare industry scrambling

to prepare for any legislative or

regulatory changes, while also having

to leave resources in place to continue

operating in the current environment.

Two of the top three healthcare

M&A deals in 2016 were acquisitions

of biopharmaceutical companies:

Shire’s $32 billion purchase of

Baxalta and Pfizer’s $14 billion

purchase of Medivation. Investment in

pharmaceuticals and biotechnology

surged in the three years from 2014-

2016, and we expect 2017 to be no

different.

Healthcare activity continues decline in 4Q

Healthcare activity by quarter

Source: PitchBook

$48

$23

$39

$31

$55

$28

$46

$57

$31

$38

$60

$36

$65

$48

$61

$55$1

53 $251 $3

42

$253

$489

$188

$460

$378

$1,4

40

$611

$632

$297 $3

99

$613

$420

$580


2013 2014 2015 2016

Median Average

Source: PitchBook

0

100

200

300

400

500

600

700


2013 2014 2015 2016


Healthcare deal flow (#) by type


1,88

0

2,41

1

2,49

7

2,45

0

3,04

4

3,30

5

2,89

0

1,96

2 2,18

3

2,22

3

2,09

5 2,54

0

2,62

3

2,19

1

49% 52% 53% 54%55% 56% 57%

2010 2011 2012 2013 2014 2015 2016

Add-On Non Add-On Add-On %

M&A activity (#) by type

Source: PitchBook

Source: PitchBook

Add-on % highest since financial crisis

PE buyout activity (#) by year

Corporate M&A accounted for a full

80% of M&A deal value in 2016—the

highest we’ve recorded since our

datasets began in 2010. But while

that makes PE seem like it’s becoming

a smaller portion of the total M&A

marketplace, sponsor-backed

activity made up 28.6% of completed

transactions—also the highest in our

datasets. This discrepancy can be

explained by the simultaneous increase

in median deal size for corporate M&A

and decrease in median deal size for

buyout transactions—PE investors

are simply being driven out of their

own market by strategic acquirers

with record amounts of cash on their

balance sheets.

These acquirers, always looking for

ways to grow market share, are able to

justify loftier acquisition prices to their

shareholders by selling them as long-

term strategic plays and not short-term

PE accounts for declining por tion of M& A valuePrivate equity

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2010 2011 2012 2013 2014 2015 2016


Source: PitchBook

M&A activity ($B) by type

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2010 2011 2012 2013 2014 2015 2016



0

100

200

300

400

500

600

700

800


2010 2011 2012 2013 2014 2015 2016

Secondary Buyout Strategic Acquisi�on

Secondary buyouts account for growing % of M&A

PE-backed exits (#) by type

financial ones. Conversely, PE investors

must be able to clearly envision a path

to a profitable exit, usually in under

10 years, and cannot justify higher

purchase prices by saying that they

are long-term strategic initiatives or

research projects.

In response to the current high-

priced environment, PE firms have

been increasingly reliant on add-on

transactions as a way to blend down

the aggregate acquisition multiple for

the assets in their portfolios. Add-ons

made up 57% of all buyout activity

in 2016, up just one point from 56%

in 2015, but a full eight percentage

points higher than in 2010. Usage of

add-ons, as a percentage of total PE

activity has grown every year over that

timeframe, showing just how important

the strategy has become. As deal flow

continues below the levels of the last

couple years, PE firms will have to flex

their operations muscles, patching

together smaller companies and

working toward more profitable exits.

$0

$20

$40

$60

$80

$100

$120

$140

2010 2011 2012 2013 2014 2015 2016

Acquisi�on Add-on Buyout

Pla�orm Buyout

Corporate acquisition size well outpaces other exit types

Median transaction size ($M) by transaction type

Source: PitchBook

Source: PitchBook

Median corporate acquisition size jumps 25% YoY as PE buyout size drops


K E E P I N G I T S I M P L EO U R M & A R E S E A R C H M E T H O D O LO GY

We define M&A as a transaction in which

one company purchases a controlling stake

in another company which is based in North

America or Europe. Other information

providers include non-control deals,

announced or rumored transactions, etc.—

we cut through the noise by analyzing only

completed control transactions.

Here are our qualifiers for this report:

Eligible transaction types include control acquisitions,

leveraged buyouts (LBOs), corporate divestitures,

reverse mergers, mergers of equals, spin-offs, asset

divestitures and asset acquisitions

We don’t include debt restructuring or any other

liquidity, self-tenders or internal reorganizations

In controlling stake transactions, more than 50% of

the company must be acquired

We don’t include minority stake transactions (less

than a 50% stake in a company purchased)

The target company (the entity being acquired)

must be headquartered in either North America or

Europe

We don’t base involvement on the location of the

acquirer, seller, or either parent company

We count completed deals, not announced,

rumored or cancelled

Transactions must involve small-to-medium

enterprises or corporations

Small business transactions are not included in this

report

See how the PitchBook Platform can

help your private equity firm close your

next deal.

[email protected]

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