The offshore M&A market was one of the few world markets to have experienced growth in the cumulative value of transactions in Q3 2012 compared to the same period last year, 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 quarterly report which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on Q3 2012.
Robustness returning to Isle of Man deals
The Isle of Man saw the biggest increase in money being spent on its shores between Q2 and Q3 of this year, generating 23 deals against 21 last quarter, with a 95% increase in combined value from US$221m to US$430m.
While we still have some way to go to return to the levels they were at two years ago, it’s encouraging to see that general robustness in deal size is returning to our market,” said Nick Verardi, Partner and Head of Corporate and Commercial at Appleby Isle of Man.
Of the 23 deals announced, 16 were minority stake transactions, suggesting that acquirers are remaining relatively cautious. The largest deal involving Isle of Man targets this quarter was the announcement by Redefine International plc, the Isle of Man, UK-based property Investment Company, to issue over 490 million new shares, in a deal worth US$205m. This was followed by WL Ross & Company LLC’s announcement that it has agreed to acquire 4.4 million shares of Navigator Holdings Ltd, the Isle of Man, UK-based liquefied petroleum gas sea transportation company, from Lehman Brothers Inc., for US$110 million.
“We remain convinced that this high volume of minority stake transactions is a function of the economic uncertainty with which investors are currently forced to grapple, which is deterring dealmakers from riskier whole-business transactions,” said Nick. “Minority stake deals allow acquirers some exposure to new markets or businesses, while making it possible to limit that exposure to a comfortable level. At the same time, while gaining bank lending is challenging, such deals give sellers access to much-needed capital and we expect the trend towards this deal type to continue well into 2013.”
Looking at transactions involving Isle of Man acquirers, the report notes that the jurisdiction completed seven deals worth a combined value of US$746m this quarter, up from US$449m in Q2 2012.
Global Offshore Market
Looking at the overall offshore market, the key themes emerging from the report show that in the third quarter of 2012:
• There was a 10% drop in the volume, and a 17% drop in the value, of transactions that took place offshore compared to Q2. This fall is typical of third quarter activity, but it is not as significant as the drop between Q2 and Q3 last year.
• Values are 11% higher than they were in the same period last year, suggesting that conditions are improving year-on-year.
• In the last 10 quarters, only three periods have seen a larger average deal size than what the offshore markets experienced in Q3 – at US$78m – suggesting some robustness returning to deal sizes.
• The financial services sector continues to dominate activity in the offshore region, accounting for over a third of all deals. The second highest value sector was telecommunications, followed by manufacturing of computer, electronic and optical products.
• Cayman remains the most attractive offshore destination for investors, for the second quarter running, followed by Hong Kong, which witnessed a significant increase in the value of deals involving its companies as targets.
• Minority stakes accounted for 56% of the volume and 52% of the value spent over the period.
• The Hong Kong and BVI markets continue to produce the largest number of deals involving offshore acquirers, generating US$24.3bn and US$17.4bn respectively. Hong Kong in particular showed impressive growth, generating nearly five times what it did last quarter.
• The offshore region ranks ninth amongst world markets by deal volume and fifth for value, worth an aggregate of $33.5bn. In value terms, offshore activity comfortably outstripped that of the Middle East, Oceania, the Nordic States, Scandinavia and Eastern Europe.
“Offshore is one of the few markets to have seen growth year-on-year, and the only mature market to do so,” said Peter Bubenzer, Appleby’s Group Chairman. “We expect that offshore financial centres will continue to be strongly represented, noting that those centres in which we are located have worked hard to ensure their continuing compliance with developing international standards, so as to retain their global acceptance in this significant role as a means of efficient investment, capital deployment and risk management.”
Looking ahead to Q4 2012, Peter Bubenzer noted: “As we enter the fourth quarter, the inability of dealmakers to predict even how 2012 will round out, let alone beyond, has an obvious impact on their willingness to make investments that might ordinarily involve at least a five-year time horizon. But against this backdrop, some of the fundamentals remain strong; not least the insatiable appetite for natural resources around the globe, the continuing advances and efficiencies being realized in high tech electronics, and the rapidly developing consumer demand in many emerging markets.”
