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In 2013, U.S. merger and acquisition deal activity crossed the $1 trillion mark for the first time since 2007. As a result, the Global Markets Intelligence research team decided to investigate whether or not valuations are beginning to get stretched to the point that deal activity may be approaching a near term peak. Specifically, using the S&P Capital IQ database, we probed U.S.-announced M&A transactions of $1 billion or more since 2007 and examined average deal valuations based on transaction enterprise value (TEV) to revenue and TEV to EBITDA. Additionally, we sliced the findings to focus on three segments: all U.S. deals of $1 billion or greater, those $1 billion or greater deals which were classified as strategic acquisitions (thereby excluding leveraged buyouts), and those strategic deals of $1 billion or more conducted by domestic buyers.
As indicated in Chart 1, 2007 saw the greatest number of deals of $1 billion or more, with 263. On average these deals were valued at 4.1x TEV/revenue and 17.1x TEV/EBITDA. In comparison, in 2013, 139 deals with prices of $1 billion or more have taken place. With regard to valuation, a typical transaction was valued at 5.5x TEV/revenue and 18.8x TEV/ EBITDA. We make no distinction here with regard to the composition of deal activity, but generally speaking, despite fewer mega deals in 2013, valuations are modestly higher today for transactions worth at least $1 billion than they were in 2007.
When we examined the deals classified as strategic acquisitions, we similarly found higher valuations today than in 2007. A typical strategic deal over $1 billion in 2013 was valued at 6.2x TEV/revenue compared to 4.8x TEV/revenue six years ago. The TEV/EBITDA multiple has modestly risen from 18.6x in 2007 to 19.4x this year. Similarly, by examining the $1 billion or greater strategic deals that domestic buyers conducted, we found that valuations are presently higher than they were in 2007, despite fewer deals. While we continue to see higher deal activity ahead, the escalated valuations, in aggregate, on mega deals may be grounds for caution ahead.