Accounting for leases: Effective dates and transition for ASC 842

M&A activity

There were 50 transactions that closed in the Pittsburgh regional market during the second quarter of 2019 (Q2 2019), up from the 47 closed transactions in the prior quarter. The 50 closed transactions marked a large increase of 16.3 percent from the 43 closed transactions during the same period in 2018.

Following a strong 2018, North America’s overall Q2 2019 M&A activity has remained fervent. Median deal size in North America rose to $93.5 million through Q2 2019, a dramatic increase from $57.0 million in 2018. The sustained stock market boom amidst a historically borrower-friendly lending environment has spurred this rise in deal size, with the $19.7 billion merger between Harris Corporation and L3 Technologies and the $11.0 billion take-private of Ultimate Software Group representing the largest transactions. Sponsor-backed transactions continue to increase as such transactions accounted for 39.4 percent of transactions through Q2 2019, up from 36.3 percent in 2018.

With slowing organic growth and increasing fear of a market downturn, large companies are insulating themselves from potential adverse effects of a changing economic landscape through M&A to shore up profit margins and increase market share. Because of active M&A markets, valuations continue to climb. The median valuation / EBITDA multiple for M&A transactions rose slightly to 10.2x through Q2 2019, up from 9.4x in 2018.

M&A activity by industry

The Industrials sector led the Pittsburgh region’s M&A activity with 36.0 percent of the total deals closed in Q2 2019. The information technology sector accounted for the second largest percentage of the total deals closed, with 24.0 percent. The healthcare sector represented the next most deals, with 12.0 percent of closed deals. The financials sector followed with 10.0 percent of the completed deals. The materials and consumer sectors accounted for 8.0 percent and 6.0 percent of transactions, respectively. Rounding out the closed deals in Q2 2019, the energy and utilities sectors each accounted for 2.0 percent. The industry diversification of Q2 2019 M&A deals is encouraging and shows the increasing variety of business activity in the Pittsburgh region.

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Source: S&P Capital IQ, PitchBook and Baker Tilly Capital research (July 2019)

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