There were 154 transactions that closed in the Philadelphia regional market during the third quarter of 2017 (Q3-2017), an increase of approximately 7.7 percent from the 143 closed transactions in the prior quarter. The 154 closed transactions mark a significant reduction from the 199 closed transactions during the same period in 2016. Additionally, aggregate reported transaction value increased approximately 89.0 percent from the third quarter of 2016 (Q3-2016).
Following the record-setting year in 2016, the pace of M&A activity in North America through Q3-2017 has slowed. Through the first nine months of 2017, M&A activity resembles dealmaking during 2011 to 2013 more than it does the recent boom from 2014 to 2016. Year-to-date (YTD) M&A volume decreased 22.6 percent and transaction size decreased 24.3 percent compared to YTD 2016.
The slowdown comes despite an increase in CEO confidence and a 14.2 percent increase in the value of the S&P 500 (using total return) in the first three quarters of 2017. Facing the possibility of major tax and healthcare reform this year, some investors in the U.S. have elected to take a wait-and-see approach to M&A. If dealmakers get more clarity regarding potential changes to either system, they are expected to be more likely to pursue deals.
Amid declining transaction volume, M&A activity increasingly involves larger acquisition targets. Rising valuations, large cash reserves and platform rollups resulting from private equity add-ons are all driving the increase in deal sizes. Private equity continues to make up a larger part of total M&A activity, with sponsor-backed acquisitions growing steadily from 24.7 percent of all transactions in the first quarter of 2016 (Q1-2016) to 30.0 percent in YTD 2017.
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