03 May, 2012

Firm’s Inaugural Offshore-i Report Reveals 25% Rise in Q1 Transaction Values


Appleby, the world’s largest provider of offshore legal, fiduciary and administration services, today released the inaugural edition of Offshore-i, which provides quarterly data and insight on merger and acquisition activity in major offshore financial centres. The report looks at M&A activity for the first quarter of 2012, providing sector analysis and expert insight on deal types and geographic trends.


The key themes emerging from the report show:

  • Deal values in Q1 2012 increased by 25% from the previous quarter’s USD 23.2bn to USD 30.9bn.
  • The number of transactions in the offshore sector in Q1 2012 amounted to 412. While deal volumes were lower than the same period a year ago, there is still a reasonable amount of activity going on across the offshore world.
  • The most popular destinations for investors doing deals involving offshore targets are Hong Kong and the Cayman Islands.
  • The banking, insurance and financial sector continues to dominate offshore activity, well ahead of its nearest comparator, wholesaling.
  • Most of the deals in the quarter were minority stake transactions rather than full takeovers.


In Q1 2012, offshore transaction values were significantly higher, with total value up 25% on the preceding three months. Conversely, the volume of deals taking place offshore was down 24% on the last quarter of 2011, and was 26% lower than the same period of last year, revealing that corporate transaction levels continue to be stagnant, according to the report.


“It will be interesting to see if this positive increase in value continues into the rest of 2012,” said Peter Bubenzer, Appleby’s Bermuda-based group chairman. “The challenges ahead are manifold, but there are ongoing signs of real buoyancy in Asian and other emerging markets.”


Offshore transactional markets have been affected by global economic pressures, and in the first quarter, the United States economy faltered amid fears that any recovery may be lacklustre, according to the report. This impacted transactions in the offshore jurisdictions of Bermuda and the Cayman Islands, which derive the bulk of their business from America. Continuing uncertainty about the Eurozone, and the potential contagion from Greece of the sovereign debt crisis into the Spanish and Italian markets hit deal drivers elsewhere. The threat of a slowdown to the seemingly unstoppable Chinese economy further dented confidence, the report states.


p>Nonetheless, the report reveals that the continuing strength and attractiveness of the Asian markets is driving investors doing deals involving offshore targets, primarily in Hong Kong and the Cayman Islands. The increase in Hong Kong deals reflects the current macroeconomic environment, with Asia providing the source of a significant amount of deal activity.


Meanwhile, Mauritius emerged as the offshore economy experiencing the greatest growth in activity, with the number of deals involving targets there jumping from six to 12 between Q1 2011 and Q1 2012.


Offshore transactions remain dominated by the banking, insurance and financial services sector, which has been consistently ahead of other areas for some time. Mining and extraction and other natural resources sectors are also experiencing activity, with the demand for natural resources coming out of China in particular fuelling dealflow.


As highlighted in the report, a small number of large deals distorted the statistics this quarter, with the biggest transaction of the period, the USD 6bn acquisition by institutional investors of a 14% stake in AIA Group, the largest independent listed pan-Asian life insurance group in the world, far outstripping the USD 1.5bn Cinven takeover of Jersey-headquartered CPA Global, one of the world’s largest legal process outsourcing and IP-management firms.


With respect to deals involving offshore acquirers, similar trends emerged in that the majority of deals came out of Hong Kong and BVI. By far the largest valued deal was from Jersey-registered Glencore, the commodities trading and mining company that agreed to buy Xstrata Plc for approximately USD40bn in shares in one the biggest mergers ever seen in the mining sector.


The report found minority stakes are changing hands more often than entire businesses, driven largely by the economic uncertainty that has presented challenges for dealmakers. Additionally, the number of IPOs hit a significant low (down from 34 in Q4 2011 to nine in Q1 2012). However, planned IPOs are on the rise.


“Planned IPOs are increasing, up from seven in the last quarter to 16, suggesting positive news for the pipeline,” Mr. Bubenzer said.


Though deals are down in the first three months of this year when compared to last quarter, the report notes that Q2 is usually more robust, pointing toward a busier few months to follow.

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