Appleby reports positive Offshore M&A activity and a surge in IPOs for Q2 2013

05 Sep, 2013

The second quarter of 2013 has shown positive signs of a gradual return to more stable transactional activity following several years of volatility. Renewed confidence in offshore transactions and an increase in deals between Q1 and Q2 2013, have been highlighted in the latest Offshore-i Report released today by Appleby, one of the world’s largest providers of offshore legal, fiduciary and administration services. The latest edition of Appleby‘s quarterly report, which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on the second quarter of 2013.

The Appleby report shows that M&A activity offshore in the second quarter of 2013 presents a relatively positive picture, with both the number of deals completed and their value remaining broadly consistent compared with Q1, suggesting that there may be some stabilisation of transactional activity levels after the volatility of the last few years.

Cameron Adderley, Partner & Global Head of Appleby’s Corporate & Commercial department comments: “The number of deals has started to form a pattern averaging out around 500 per quarter in five of the last six quarters and so far this year we have seen 493 deals in Q2 and 491 in Q1.  We feel comfortable asserting that business confidence is at last returning to the markets.”

“At USD64m for Q2, average deal size is higher than it has been for five of the last eight years.  The offshore region average is also higher than all other regions except for North America at USD119m and Central and South America at USD109m.”

“When we look at the contribution of the top 10 offshore deals to overall activity in Q2, we see that they accounted for just a third of the cumulative deal value overall, as they did in Q1. We believe that this gives further reason for optimism as values for past quarters have been distorted by one-off mega deals. We can now see genuine substance returning to the mid-market and activity returning across the spectrum of business sizes. Transaction sizes show tangible signs of settling at pre-boom levels, on a par with 2006 data, when USD61m was spent on the average transaction”

Frances Woo, Appleby’s Group Chairman added: “When we look to gauge the relative strength of the offshore markets as compared to other major world regions, this quarter we find these numbers are encouraging with the offshore markets now ranking sixth globally in terms of cumulative deal value, only just behind South and Central America. The offshore market is more active than Oceania, Africa and the Middle East. And when we look at average deal size we again find a source of positive news; here the offshore region ranks third globally, behind only North America and South and Central America in Q2 2013.”

Global Offshore Market: Q2 2013

The key themes emerging from the report show that in the second quarter of 2013:

  • There were 493 deals involving offshore targets completed with an aggregate value of USD31.6bn, putting the quarter slightly ahead of Q1 2013.
  • The average offshore deal size was USD64m for Q1 2013, the same as for 2013 to date. If this is maintained or improved, to the year end, deal sizes in 2013 would be greater than they have been in at least five of the last eight years.
  • Acquisition activity led by companies incorporated offshore rebounded in Q2 2013 after a weaker first quarter, and there were 426 deals with a cumulative value of USD34bn, up 11% in terms of volume and 29% by value.
  • In Q2 there were only three deals announced valued in excess of USD1bn.  Instead the majority of money was spent in the mid-market on transactions valued at between USD200-700m. We see this strengthening of the mid-market as a crucial step towards recovery.
  • Finance and insurance deals continued to drive the offshore M&A markets with 168 deals with a combined value of USD10bn, up quite considerably on Q1 2013, when there were 147 deals in the sector worth USD6.5bn.
  • The most popular deal type was the minority stake transaction, of which there were 295 that contributed USD11.5bn to the cumulative deal value for the quarter.
  • Hong Kong acquirers spent the most money in Q2 2013, with an aggregate deal value of USD13.7bn that represented 40% of total spending by offshore acquirers.
  • By average deal size the offshore region ranks 3rd  globally, behind North America and Central  and South  America in Q2 2013.
  • Initial Public Offering activity is looking increasingly bullish, with both the volume and value of IPOs up considerably in Q2 2013 with 17 deals and a cumulative value of USD2.4bn. 
  • Q2 2013 was the best quarter since 2011 for IPOs and planned IPOs, with 39 deals in total worth USD4.1bn.

Energy and natural resources driving activity

Alongside the financial services industry, three of the largest deals of Q2 2013 all share one common theme, securing energy and resource supplies for emerging market economies.

However once again, it was financial services and insurance deals that powered the offshore M&A markets. In Q2 2013 there were 168 deals in that sector with a combined worth of USD10bn, up from Q1, when there were 147 deals worth USD6.5bn. The largest financial services deal in Q2 2013 saw Platform Acquisition Holdings list on the London Stock Exchange in an IPO raising USD905m – the company is a special purpose acquisition vehicle incorporated in the BVI.

The biggest deal of Q2 saw the Indian state oil firms ONGC and Oil India sign an agreement to buy a 10% stake in a Mozambique gas oil field with the acquisition of BVI-incorporated Indian conglomerate Videocon Group for USD2.4bn. In April 2013, a company owned by Alexander Djaparidze, the Russian billionaire, paid USD941million for an 18% stake in the Eurasia Drilling Company, a Cayman-incorporated onshore oil and gas drilling company, and in May China Resources Power Holdings acquired Elite Wing, a BVI-incorporated wind farms development services company for USD552m.

“The enduring story for the BVI is still the pursuit of natural resources assets by developing economies which, alongside the financial services industry, is driving activity amongst offshore businesses.” confirms Cameron Adderley.

Minority stake transactions and acquistions lead the way

For the sixth consecutive quarter, minority stake deals continue to prove the most popular transactions in offshore deals. 60% of all deals done in Q2 2013 were this type but they only accounted for just over one in three of the dollars spent on offshore deals in the second quarter.

However, 44% of the total value in Q2 (USD14bn) went into acquisitions, up on 28% of the total value (USD8.8bn) in the Q1 2013 figures. Three of the largest deals of Q2 2013, which exceeded USD1bn, were all 100% acquisitions. A sign that investors are gradually willing to put money into riskier whole-business deals, says the Appleby report.

IPOs surge back into popularity, Hong Kong benefits

The second quarter of 2013 posted impressive results in the Initial Public Offering market with 17 IPOs worth a combined value of USD2.4bn as opposed to 8 in Q1 2013 with a combined value of only USD504m. Planned IPOs were also on the increase by both number and value and reached 22 deals worth USD1.7bn.

One location stands out above others to benefit from the apparent surge in IPO activity, namely Hong Kong. Nine out of the ten largest planned IPOs will be listed on the Hong Kong Stock Exchange (HKSE). This is in part due to the suspension by the Chinese government of approval for listings in mainland China which is driving Chinese company IPOs to Hong Kong.  The largest of these is the USD325m planned IPO of 30% of Cayman-incorporated Nexteer Automotive Group.

British Virgin Islands, Cayman Islands and Bermuda top offshore M&A activity

The  Cayman Islands continued its Q1 2013 lead by volume of deals done, accounting for 105 of the 493 offshore deals recorded in Q2 2013 or 21%. This figure was down slightly when compared to the 118 deals closed in Q1 2013, but with a 24% fall in aggregate deal value from USD12.2bn to USD9.2bn, Cayman was overtaken by BVI as the destination of choice for offshore spenders, with a 264% increase in cumulative M&A value from USD2.6bn in Q1 to USD9.6bn in Q2 2013.

Bermuda also posted healthy second quarter figures, with 98 deals recorded accounting to USD7bn in deal value, while the Crown Dependencies also all enjoyed a positive quarter with deal volumes up 16% in Guernsey to 66 and up 14% to 41 in Jersey. In the Isle of Man, while the volume of deals fell from 20 to 18 in Q2 2013, however, the value of those deals was up considerably, rising 46% compared to Q1.

A further positive indicator is found in acquisition activity by offshore companies. The Appleby report shows that the average spend by offshore-incorporated acquirers stood at USD80m in Q2 2013, making it one of the biggest quarters for value of spend by acquirers since the start of 2010. Hong Kong acquirers have by far been spending the most money in Q2, with an aggregate deal value of USD13.7bn, representing 40% of total spending by offshore acquirers and ahead of its nearest rival BVI, with a deal spend of USD9.6bn.

Strength of the offshore market globally

In comparison to other major world regions, the offshore world has seen its global position remain at 6th in terms of cumulative deal value, with more money spent on offshore registered businesses than on those in Africa and the Middle East combined. The offshore market has also seen more deal volume than Central and South America, Africa or the Middle East.

In terms of average deal size in 2013, the offshore market is ranked 3rd globally, behind only North America and Central and South America, and with an average deal size of USD64m.  This puts the offshore sector above  Western Europe (USD60m) and the Far East and Central Asia (USD36m). The offshore markets accounted for 3% (USD31.6bn) of all global economic deal values which stood at a total of USD1.1tr for the second quarter of 2013.

These numbers are encouraging,“ says Cameron Adderley, “the offshore market is showing signs of stability and the emergence of a new norm.“

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