While the first quarter of 2013 saw the lowest number of deals in the offshore region since Q1 2008, the offshore M&A market has performed better than the global average, according to a report released today by Appleby, one of the world’s largest providers of offshore legal, fiduciary and administration services. The latest edition of Offshore-i, the group’s quarterly report which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on the first quarter of 2013.
The report shows that both the volume and value of deals involving offshore targets dropped considerably in Q1 2013 as against the preceding quarter, with volume down 28% and value down a disappointing 73%. While it is not unusual to see a drop in volume when comparing Q4 to Q1, this year’s first quarter was particularly quiet, with the report revealing that the offshore markets recorded the lowest number of deals in five years. Nevertheless, there is room for optimism when considering the average deal size, which though lower than the figures witnessed during 2012, is consistent with the average deal size across 2010 and 2011. Furthermore, when comparing the offshore region with the global market, offshore deal volumes were down only 10% year-on-year, compared to a global average drop of 20%.
The largest deal of the quarter was the USD2bn joint venture by BasicEnergy and Malaysia’s Petrosolve Sdn Bhd to create Hong Kong-based Grandway Group followed by the USD1.5bn sale of 25 million shares in BVI-based fashion label Michael Kors Holdings Limited.
Isle of Man continues steady growth path
Unsurprisingly the Isle of Man also experienced a decline in activity during the quarter with deal volumes down 20% and values down by USD3m when compared with Q4 2012. Encouragingly however, this decline was less dramatic than that seen in much of the offshore world, suggesting that the Island has weathered the storm well in comparison. The jurisdiction was the target of 20 deals in Q1, over six of which involved a lawyer from Appleby’s Isle of Man office.
Commenting on the recent report, Nick Verardi, Partner and Head of Corporate and Commercial at Appleby (Isle of Man) LLC said, “The numbers speak for themselves, but I am in no doubt that the tide is changing as we are already seeing a steady inflow of instructions to boost business for the next quarter.” He continued, “The early part of the year is traditionally quiet for M&A activity and, whilst the Isle of Man has suffered, it is encouraging to see that the impact has been less dramatic than elsewhere.”
Minority stake acquisitions continue to dominate deal activity, accounting for 15 of the 20 deals completed in the Isle of Man in Q1 2013. Of particular significance was the sale of USD20m worth of shares by Eros International plc, the Isle of Man based Bollywood film’s distributor, to investment management organisation Capital Group, representing a 61 per cent stake.
The largest transaction involving Isle of Man targets this quarter involved Continental Farmers Group plc (“CFG”), an agricultural production holding company, who in March announced that it had entered into an agreement with United Farmers Holding Company under the terms of which Saudi-Arabian based United Farmers will purchase the company and CFG shares will be delisted from the London Stock Exchange. The transaction is subject to the approval of shareholders and the Antimonopoly Committee of Ukraine (where CFG has significant farming operations) and the sanction of the Court, amongst other conditions.
Global Offshore Market: Q1 2013
The key themes emerging from the report show that in the first quarter of 2013:
• There were 448 deals involving offshore targets completed with an aggregate value of USD28bn, representing a 28% drop in volumes and a 73% drop in values against the previous quarter.
• The average offshore deal size was USD62m for Q1 2013, which is lower than we have come to expect based on 2012 figures, but is consistent with the average deal size across 2010 and 2011, which stood at USD66m across those eight quarters.
• The start of 2013 saw just two deals announced offshore that were worth in excess of USD1bn; this compares to 10 such deals in Q4 2012.
• While financial services dominated in terms of deal volumes, accounting for 135 of the 448 deals done in Q1, the sector is not the frontrunner in terms of value. That is manufacturing which, with 70 deals, accounted for 16% of the deals done in the first quarter of 2013, and 26% of the USD27.9bn spent.
• The vast majority of deals that took place offshore in the first quarter were minority stake transactions, comprising 274 of the 448 deals completed, or 61% of the total. The market for initial public offerings offshore remains steady. Eight IPOs were announced in the quarter under review, as against 14 in the three months preceding this one.
• Cayman-incorporated targets were the most popular in our region in this quarter, accounting for 102 of the 448 transactions.
• Acquisition activity led by companies incorporated in offshore markets has slumped this quarter, with 352 worth an aggregate value of USD25.2bn.
“The fortunes of the offshore world are, of course, entirely entwined with those of the other major economic regions in which many of our clients operate, and despite positive economic signs emerging from the United States and a period of stability expected in China now that its political uncertainties have been addressed, global dealmakers remain nervous,” said Cameron Adderley, Global Head of Appleby’s Corporate & Commercial department. “We are cautiously optimistic that history will pick out 2013 as the year in which the international economy entered a gradual upward trajectory, but it did not begin in the first quarter.”
Frances Woo, Appleby’s Hong Kong-based chairman added, “In all of our jurisdictions, despite conservatism still being the prevailing feature, we are seeing an increasing acceptance of a new reality when it comes to growth prospects, liquidity challenges and pricing levels. Experience tells us that Q2 is usually more robust than Q1 and we expect that to be the case again this year. Certainly the evidence from our business is that pipelines are strengthening and activity levels are on the increase.”
Global market comparison
The offshore M&A market continues to perform relatively robustly on the international stage, with the offshore market ranking ninth on the list for deal volume activity and sixth by value this quarter, accounting for 3% of the global total of USD909bn. At USD62m, the offshore market has generated the fourth highest average deal size, considerably ahead of Western Europe at USD40m and Asia at USD39m.
“We continue to find these regional statistics encouraging from an offshore point of view, and we expect the offshore financial centres to continue to perform strongly on the international stage,” said Woo. “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 eclipsed by larger relative growth of onshore economies, and perhaps the 35% aggregate deal value growth seen in North America in Q1 2013 against a year ago should give us all a reason to be cheerful.”
Photograph of Nick Verardi, Partner and Head of Corporate and Commercial at Appleby (Isle of Man) LLC is attached.
