Q3 2015 M&A Snapshot
Posted On: October 16th, 2015
Q: Are M&A activity levels slowing?
A: No. Overall M&A activity continues at a strong pace as we enter Q4 2015.
Q: Are the top acquirers within the Internet, mobile & digital media sectors as active as they have been historically?
A: No. Interestingly, the top ten acquirer activity is down 32% this year from a peak in 2014. In each of the first three quarters of 2015 the top ten acquirers announced 19 acquisitions. By comparison, Q1, Q2 and Q3 2014 had 28 acquisitions per quarter on average.
Q: Then more acquirers are active?
A: Yes, but … Almost all the growth in acquirers came from Chinese acquirers. In Q1 and Q2 2015, Chinese transactions comprised over 20% of transaction volume, up from less than 5% at the beginning of 2014. However, only two transactions were Chinese acquirers buying a U.S. target. The activity was almost exclusively intra-China.
Q: Venture financing valuations have generally risen over the past few years. Have M&A valuations also risen?
A: No. While exceptions certainly exist, we track three measures that suggest consistent valuation levels over the past several years. First, the average valuation of an acquisition between $25mm and $1b has remained remarkably consistent at around $200mm since 2012. Second, when analyzing valuations from the perspective of revenue multiple, premium-value transactions have tended to fall between 5x – 10x revenue with no general upward trend. Third, premium-value transactions (>5x revenue or invested capital) has remained stable at between 3% – 4% of all transactions.
Q: Okay, no valuation bubble but is there an activity level bubble in the M&A market?
A: Possibly but we see it more as a cyclical high point. Over the past four years the highest quarterly activity (Q2 2015) is about double the lowest (Q2 2013).
The commentary above is generally based on what we define as Core Transactions ($25mm – $1b valuations) within the Internet, mobile & digital media sector