M&A activity in North America and Europe got off to a slow start in 2018, compared with the livelier tempo of the past few years. However, the sluggish opening quarter may not set the tone for the whole year, as deal flow is expected to increase throughout the rest of 2018 due in part to corporate tax cuts in the US and a relatively stable European economy.
Our 1Q 2018 M&A Report includes analysis of key data points, deal breakdowns by region and size, and spotlights on divestitures and activity in the healthcare industry. The full report is available to download for free, but for a quick look at the highlights, we've put together a selection of charts: Deal count continues to slide in 1Q The 4,867 deals completed in 1Q totaled $616.7 billion in value. Both of those numbers represent significant YoY declines—18% and 25%, respectively. Deal flow is expected to increase as the year goes on, however, given the number of announced transactions in the pipeline, such as Keurig Green Mountain's $23 billion take-private buyout of Dr Pepper Snapple Group.
Median deal size remains historically high Although the pace of M&A activity hasn't kept up with previous years, median deal value is on the rise. As of the end of 1Q, the median value for 2018 was up more than 24% YoY.
Trend toward larger deals continues as lower & middle ranges see an increased share of deal value Over the past few years, deals worth less than $100 million have occupied a decreasing percentage of overall activity. At the same time, the lower and middle markets are experiencing an increase in their share of deal value. Although the percentage of deals in the $5 billion+ range, for example, increased QoQ, it has declined since peaking in 1Q 2016.
Interest in B2C shrinks as B2B commands a growing share of capital B2C transactions accounted for just 15.9% of deal flow in 1Q. Interest in traditional B2C assets is dwindling as tech-focused firms continue to permeate consumer-facing sectors. Meanwhile, the B2B sector accounted for 38.6% of completed transactions and more than 30% of deal value.
Healthcare sector set for a slower 2018 After spiking in 2015, activity in the healthcare industry fell for two consecutive years, and the trend is likely to continue. The 368 deals completed in 1Q accounted for 9.4% of all activity, below last year's total of 9.7%.
Median healthcare deal size drops in 1Q 2018 Deals in the healthcare sector are historically larger than in the broader market. In 2017, the median deal size was $54.6 million, compared to $38.5 million across all industries. But that trend reversed in the first quarter of this year, with a median healthcare transaction size of $37 million.
Despite recent declines, divestitures are primed to accelerate Historically, M&A activity exhibits a high degree of cyclicality, and multiple signs suggest the cycle might be ready to turn again. A key indicator is the uptick in the number of announced divestitures and carveouts, as companies are looking to slim down after the recent buying binge.
Divestiture size persists at high levels The average size for divestitures so far this year is currently below the number for 2017. But the average grows to $583 million and surpasses last year when deals that have been announced but not closed are taken into account.
Here's the full 1Q 2018 M&A Report.