Deal activity in North America to see steep declines in coming quarters: PitchBook

The data agency said that with most dealmakers working from home and valuation estimates varying widely, North America is set to drop to approximately 400 deals in Q3 2021, from north of 3,000 in Q1.

North American deal activity remained flat in Q1 2020 but is set to weaken significantly in the months ahead, according to a recent PitchBook report.

The quarter produced 3,169 transactions, a 2.6 percent gain over Q1 2019, while total deal value over the three-month-period tumbled.

Public and private M&A activity reached $400.8 billion in combined deal value during Q1, marking a 25.1 percent decline on a year-over-year basis, the report stated.

The decline in value was slightly offset by the fact that most of the deals that closed in Q1 had already been negotiated before the global pandemic, hence a sustained level of deals that closed, PitchBook said.

However, the coming quarters may not see that advantage. The data agency said that with most dealmakers working from home and valuation estimates varying widely, North America is set to drop to approximately 400 deals in Q3 2021.

The lack of financing availability, social distancing and weakening CEO confidence have also contributed to the decline in M&A, according to PitchBook. While it’s hard to estimate how long this environment will last, M&A will continue to slow until companies have somewhat accurate earnings, PitchBook wrote.

Still, some industry sectors have done better than others

Healthcare was the sole sector to post year-over-year growth in both deal value and count, per the report.

The IT sector did see declines in both deal value and count, but those declines were not as steep as other sectors. At the same time, IT comprised 21.7 percent of Q1 deal value, compared up from 17.4 percent of deal value in Q1 2019, according to PitchBook.

M&A multiples have also softened due to the pandemic. In Q1 2020, the rolling four-quarter median fell to 9.8x, from 10.1x in Q4 2020.

On a positive note, the covid-19 aftermath may unlock buying opportunities for sharp and well-capitalized acquirers and financial sponsors alike, the report said. In situations where credit is not easily available, minority investments and PIPE deals may become handy strategies for investors, according to PitchBook.

Action Item: See PitchBook’s full report here.