A landslide of mergers and acquisitions (M&A) in the fourth quarter of 2016 saw the highest value of deals ever recorded in a single month in October.

Global deal-making hit $526bn in October 2016 driven by megadeals including US telecom network AT&T’s (T:NYSE) offer for media and entertainment outfit Time Warner (TWX:NYSE) and British American Tobacco’s (BAT) $58.1bn bid for Reynolds American (RAI:NYSE).

Staying on the sidelines

Action in M&A markets was mainly driven by publicly owned businesses buying each other, according to research published by Ernst & Young (EY). Private equity acquisitions were lower in October 2016 compared to a year earlier and the overall value and number of deals for 2016 was down year-to-date at that point.

In the UK and Ireland, inbound M&A in the 12 months to October totalled $147bn, down 54% on a year earlier, while outbound M&A was $121.6bn, up 5%.

Investors in the UK looking to bag takeover targets ahead of deal announcements should focus their attention on the technology sector, which topped the deal value league table in both North America and Europe, according to the EY research. Banking and capital markets businesses, led by the Deutsche Boerse offer for London Stock Exchange (LSE), and industrial products businesses were also popular sectors in Europe.

‘Everything is changing for global companies, except the expectations of their stakeholders around growth and returns – profitable growth is a mainstay demand of business,’ says EY global vice chair of transaction advisory services Steve Krouskos.

‘But turbocharged technological advances and an unsettled geopolitical landscape have changed the M&A field of play forever... the quickest route to innovation and growth is M&A – mergers, acquisitions and alliances.’

Premium bids

Bid premiums paid to target shareholders in Europe were around 18%, down from 19% in 2015. Valuation multiples of acquired businesses declined slightly. Average enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiples offered by bidders were 9.5 versus 10.0 a year earlier.

Bidders were mostly likely to pay big valuation multiples in health care with EV/EBITDA multiples averaging 12.6 and in technology, with average multiples at 10.9.

The lowest valuation multiples were paid in telecommunications at 7.3 times EBITDA and automotive and transportation at 8.2.

Private equity companies favoured deals in technology, which accounted for $57.6bn of deals in 2016 up to the end of October, utilities ($29.5bn), health care ($28.9bn) and consumer goods ($25.1bn). One of the biggest private equity deals in October was the purchase of one private equity company by another as Goldman Sachs and the Canada Pension Plan Investment Board bought London-listed SVG Capital (SVI) for just under $1bn.

Disclosure: The author owns shares in BAT

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