Philadelphia regional M&A update: Q4-2016

M&A activity

M&A in the Philadelphia regional market followed the national trend in the fourth quarter of 2016 (Q4-2016) with the number of closed transactions declining by approximately 27 percent from the prior quarter from 135 to 99. The 99 closed transactions mark a significant reduction from the 207 closed transactions during the same period in 2015. For the full year, 2016 lagged 2015’s strong M&A numbers with 478 reported closed transactions vs. 782 for fiscal 2015, a decline of approximately 39 percent, which is above the national decline in number of middle market M&A transactions of 16.2 percent for the calendar year.

While M&A declined in 2016 both regionally and nationally, it is important to note that this decline is compared to the white hot M&A market in 2015. When put in historical context, 2016 was a very good year for middle market M&A and all signs point to a continuation of this trend into 2017 due to the broad availability of capital and persistent slower economic growth climate as well as optimism from CEOs about the outlook for business. Demographics also continue to drive M&A, particularly at the lower end of the middle market as the owners of family and founder controlled companies contemplate retirement and business succession.

Philadelphia regional market M&A activity

M&A activity by industry

The information technology sector led the Philadelphia region’s M&A activity with 28.3 percent of the total deals announced in Q4-2016. Consumer and healthcare were second and third with 23.2 percent and 17.2 percent, respectively. Industrials, materials, financials and other accounted for the remainder of the transactions representing 12.1 percent, 8.1 percent, 6.1 percent and 5.1 percent, respectively.

Source: S&P Capital IQ and Baker Tilly Capital research (Dec. 2016)

Philadelphia regional middle-market M&A activity

There were 17 middle-market transactions with reported values that closed during Q4-2016, down from 16 during Q3-2016. Q4-2016 also marked a decrease of 48 percent from 33 middle-market deals with reported values for the same period in 2015.

Philadelphia regional middle-market M&A activity:
Average transaction size

The average transaction size of $62.0 million for the 17 middle-market deals with reported values in Q4-2016 was a $4.2 million decrease from the average transaction size of the 16 middle-market deals with reported values in Q3-2016, and the sixth highest average value over the last 16 quarters.

Source: S&P Capital IQ and Baker Tilly Capital research (Dec. 2016)
Middle-market is defined as transaction values between $10 million and $200 million

Buyers and targets by location

As presented below, the largest number of buyers and sellers were located in the Philadelphia and Southeast Pennsylvania areas during Q4-2016.

Buyer by location

Seller by location

First three numbers of ZIP codes included in each region, as categorized by S&P Capital IQ:
Harrisburg: 170, 171, 172, 178; Lancaster: 173, 174, 175, 176; Lehigh Valley: 180, 181, 183; Philadelphia: 190, 191, 192; Reading: 179, 195, 196; Southeast Pennsylvania: 189, 193, 194; South Jersey: 078, 079, 080, 081, 082, 083, 084; Trenton: 085, 086, 087

Notable Q4-2016 Deals

Source: S&P Capital IQ and Baker Tilly Capital research (Dec. 2016)

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