Appleby Reports Offshore M&A Activity for Q4 2012

| February 19, 2013 | 0 Comments

The offshore markets experienced their largest quarter-to-quarter rise in M&A transactions in the last three years, according to a report released today by Appleby, the world’s largest provider of offshore legal, fiduciary and administration services. The latest edition of Offshore-i, the firm’s quarterly report which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on Q4 2012 while providing a review of the year as a whole and predictions for 2013.

Substantial increase in the amount of money spent on Guernsey targets

Guernsey saw a healthy uptick in M&A activity this quarter, with the jurisdiction being the target of 59 deals as against 45 in Q3 2012, worth a cumulative value of USD2.6bn. This represents an increase in value of 240% on the preceding three months and 181% as against the same quarter in 2011.

The financial services sector continues to drive activity in the region, accounting for nine of Guernsey’s top ten deals this quarter. Of particular significance was the US$1bn issuance of new shares by DCG Iris Ltd, the Guernsey, UK-based closed end investment trust, which along with the USD1.4bn sale of the holding entities of Conversus Capital, the Guernsey-incorporated asset management company, to US private equity house HarbourVestPartners in Q3, were the largest transactions involving a Guernsey target in 2012.

”Notwithstanding the Euro crisis and other macro challenges, 2012 has been a busy transactional year for Guernsey, particularly from a fund and fund management perspective, where we have seen a number of large deals including new entrants to the market. The HarbourVest acquisition is an interesting one; HarbourVest already has its own structures in Guernsey and therefore knows it to be a sophisticated and well regulated jurisdiction,” said Barney Lee, Appleby’s Practice Group Head for the Corporate & Commercial department in Guernsey. “The latest figures are encouraging and underpin the strength and increasing international attractiveness of Guernsey, particularly for private equity.”

Where Guernsey companies were acquirers, the report notes that in the final quarter of 2012 there were 21 deals with a combined value of USD1.05bn, up from USD293m in Q4 2011.

Global Offshore Market: Q4 2012

The key themes emerging from the report show that in the fourth quarter of 2012:

· The number of deals involving offshore targets amounted to 590, up 27% over the previous quarter. This is easily the biggest rise quarter-to-quarter in the last three years.

· The cumulative value of offshore deals was US$101.8bn, up 202% on the previous three months and 282% on Q4 2011.

· The average deal size was USD173m – by far the largest average of the last 12 quarters.

· The financial services and insurance sector continues to dominate offshore M&A activity, accounting for 30% of all deals completed. This sector was considerably busier in Q4 than the preceding quarter, with 14 more deals and spending up USD14.5bn.

· Minority stake transactions remain the most popular deal type by volume. However, acquisitions overtook them in terms of value, accounting for 70% of the money spent.

· There were just 28 IPOs and planned IPOs recorded – this compares to 43 in the same quarter of 2011.

· Cayman remains the most attractive destination for investors looking offshore, with BVI being the busiest market by value. The value of deals was also up significantly in Hong Kong and Guernsey.

· Where offshore companies are acquirers, BVI continues to lead by volume, with 139 deals recorded.

· The offshore region ranks fifth globally by value of M&A deals, on par with that of Eastern Europe, the Nordic States, Africa and the Middle East combined.

Significant uptick in M&A Activity to round off sluggish year

Both the volume and value of deals involving offshore targets increased considerably in Q4 as against the preceding three months, with volume up 27% and value up 202%. While the substantial increase in value is largely attributable to the biggest transaction of the quarter – the USD56bn sale of British Virgin Islands-listed oil exploration business TNK-BP to Russian state-owned oil company Rosneft – it is encouraging to see that if this deal is excluded from the data, the quarter still boasts a deal value of USD45.8bn, placing it as the third highest three-month period of the last three years.

Nevertheless, despite the surge in activity for the last quarter, 2012 overall had 14% fewer deals than 2011, and 26% fewer than 2010.

“While we remain positive about activity levels going forward, there is no escaping the fact that 2012 was another challenging year for M&A in our markets,” said Cameron Adderley, Global Head of Appleby’s Corporate & Commercial department. “2012 was peppered with uncertainty, most notably around the Euro crisis, the US presidential election, and changes of leadership in China and elsewhere. Moving into 2013, the outlook is far from clear and the very real questions remain around the single European currency, America’s challenges related to the so called Fiscal Cliff and China’s continuing growth.”

Average deal sizes, meanwhile, illustrate a depth slowly returning to the marketplace. The average deal size this quarter stood at USD173m, outstripping averages over the last 12 quarters, while average deal size in 2012 surpassed the preceding two years, coming in at USD103m as against USD63m in 2011 and USD71m in 2010.

“We are optimistic that the M&A markets in which we operate will gradually strengthen, not least as a result of the relative health of strategic buyers, the emerging markets and the energy sector,” said Frances Woo, Appleby’s Hong Kong-based Chairman. “Offshore jurisdictions generated two of the world’s largest transactions in 2012 – that of TNK-BP and Jersey based Glencore’s USD33bn purchase of Xstrata. We have plenty of reason to be cautiously hopeful going forward, with general robustness returning to deal value as well as the number of deals coming out of our region growing faster than any other world region apart from the Nordic States this quarter.”

Cayman Islands continues to attract investors offshore

The Cayman Islands remain the most attractive market in the offshore region for M&A targets, with 142 acquisitions of Cayman-incorporated businesses in the fourth quarter of 2012, as against 102 of BVI-targets, in second place.

In terms of value, the BVI tops the table, accounting for USD60.2bn or 59% of dollars spent offshore in the fourth quarter; this compares to 9% in Q3 2012 and 23% in Q4 2011.

Hong Kong, meanwhile, continues to attract investors to it shores, and in the fourth quarter of 2012, saw an uptick in deal activity as against the preceding three months, with volume up 41% and value up a considerable 123%. Moreover, examination of year-on-year growth reveals that value was up 245%, with USD18.6bn deals generated in Q4 2012 as against just USD5.3bn in Q4 2011, signifying a general robustness returning to the Asian marketplace.

Looking ahead to 2013, Ms. Woo notes: “We expect that the Cayman Islands, closely followed by Hong Kong, will remain the driving forces for offshore M&A activity, with both jurisdictions plugged tightly in to the Asian economic growth story, while the Asia Pacific and Latin America will remain the most attractive world regions for M&A targets.”

Financial services dominates offshore market volume in 2012

The financial services and insurance sectors dominated activity in the fourth quarter of 2012 and to a considerably higher value than the previous quarter, accounting for 178 of the 590 deals done, worth a combined value of USD23.2bn.

Across 2012, financial services deals accounted for almost one in four dollars spent on offshore transactions (24%), and a third of the volume (32%), with both proportions up on the year before, when the sector made up 19% of deal values and 29% of volume. Appleby predicts financial services will continue to dominate M&A activity in offshore markets in 2013.

Behind financial services, manufacturing was the next busiest sector of the quarter with 96 transactions, worth a combined value of USD3.3bn in Q4.

Meanwhile, the professional, scientific and technical services sector saw the highest deal value this quarter, with USD62bn worth of deals, attributable in large part to the TNP-BP acquisition. This deal, along with the USD2.4bn acquisition of the subsidiaries of iron miner and ore wholesaler Wuhan Iron & Steel Group Mining by Chinese parent Wuhan Iron and Steel, highlights the ongoing importance of energy and natural resources as a generator of transactions in the region and around the world. Insatiable demand from emerging markets continues to fuel activity, along with shale gas discoveries and technical innovations in the industry.

Minority stake transactions and IPOs

Yet again, acquisition of minority stakes led by deal type this quarter, accounting for 58% of all deals done, or 342 out of the 590 transactions recorded in the period.

“It is indisputable that minority stake transactions remain the deal types of choice, and that appears to be a clear function of the macroeconomic uncertainty facing investors as they embark on deals,” Adderley said.

Acquisitions overtook minority stake transactions in terms of value, accounting for 70% of the money spent, or USD71.1bn. This dramatic increase in the amount of money being spent on these deals, from USD13bn in the third quarter, is again largely attributable to the two TNK-BP transactions which both saw 50% stakes change hands.

IPO’s suffered a slight decline in Q4, with only 28 IPOs and planned IPOs recorded as compared to 43 in the same quarter of 2011. It is worth noting, however, that the money raised in IPOs in Q4 was over double that raised in the preceding quarter – USD992m as against USD450m – showing a general robustness returning to these listings.

There are also 14 planned IPOs in the pipeline, suggesting that conditions may improve in 2013.

“We hope to see IPO activities accelerate through 2013, initially with smaller offerings but probably gathering depth as the year progresses,” said Mr. Adderley. “There is no doubt that the outlook for 2013 is uncertain however, in view of the strengthening US economy, combined with reduced stock market volatility globally, assertive action from central banks and brightening economic prospects in both Europe and Asia, we are cautiously optimistic that companies will be tempted back to fundraising on the public markets.”

BVI and Hong Kong markets continue to top deals by acquirer

Looking at acquirers based offshore, the numbers are up significantly both in terms of volume and value, suggesting that buyers from the offshore markets are in rude health.

The BVI continues to produce the largest number of deals involving offshore acquirers, with 139 deals recorded in Q4 2012 as against 164 in the same period last year.

The Crown Dependencies, meanwhile, showed a considerable increase in acquisition value compared to a year ago, with Jersey topping the table by value this quarter at USD34.7bn. This value, however, was largely attributable to the Xstrata deal.

Global market comparison

The offshore M&A market continues to fare positively against other global markets, with offshore this quarter ranking ninth on the list for deal volume activity and fifth by value, with an aggregate value of USD101.8bn.

“It is encouraging to see that the offshore markets average deal size for the quarter, at USD173m, far outstrips those of North America, Western Europe and the Far East and Central Asia and is second only to South and Central America’s ,” said Ms. Woo. “The region’s cumulative deal value is on par with that of Eastern Europe, the Nordic States, Africa and the Middle East combined.”

Ms. Woo continued: “We expect that offshore financial centres will continue to perform strongly and relatively robustly on the international stage. That said, as and when a deeper global recovery takes hold of the M&A market, we will not be surprised to see the performance of our markets rapidly eclipsed by the larger relative growth of onshore jurisdictions and bigger economies.”

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Category: Finance & Business

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