Offshore Merger And Acquisition Activity Rises
Wednesday, May 9, 2012
A new report from Appleby shows that transaction values for mergers and acquisitions
(M&A) in major offshore financial centers rose by 25% in the first quarter
The first ever Offshore-i report from Appleby, the world’s largest provider
of offshore legal, fiduciary and administration services, looks at M&A activity
for the first quarter of 2012, providing sectoral analysis and expert insight
on deal types and geographic trends.
The key findings of the report show that offshore deal values in Q1 2012 increased
by 25% from the previous quarter's USD23.2bn to USD30.9bn. However, 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
activity continues to be depressed.
The number of transactions in the offshore sector in Q1 2012 amounted to 412.
However, while deal volumes were lower than the same period a year ago, the
report shows that 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, while the banking, insurance and
financial sector continues to dominate offshore activity, well ahead of the
next area of interest, wholesaling.
The report finds that most of the deals in the quarter were minority stake
transactions rather than full takeovers.
“It will be interesting to see if this positive increase in values 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.”
The report says 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. 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 report said, while
fears about China's ability to maintain high growth rates further dented confidence.
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.
Meanwhile, Mauritius emerged as the offshore economy experiencing the greatest
growth in M&A 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
As highlighted in the report, a small number of large deals distorted the statistics
this quarter, with the biggest transaction of the period, the USD6bn acquisition
by institutional investors of a 14% stake in AIA Group, the largest independent
listed pan-Asian life insurance group in the world, dwarfing the USD1.5bn Cinven
takeover of Jersey-headquartered CPA, one of the world’s largest legal
process outsourcing and Intellectual Property-management firms.
With respect to deals involving offshore acquirers, Jersey completed 23 deals
with an aggregate deal value of USD46.2bn in the first quarter of 2012. The
report notes that this quarter Jersey was also at the centre of one of the biggest
ever mergers seen in the mining sector - the purchase of Xstrata PLC by Jersey-registered
commodities trading and mining company, Glencore for approximately USD40bn in
shares. Mark Lewis added: "It is really encouraging to see Jersey at the
centre of an industry first like this. Jersey continues to attract companies
that can see this jurisdiction as giving them an advantageous position from
which they can leverage their growth strategies.”
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 Initial Public Offerings (IPOs)
hit a significant low (down from 34 in Q4 2011 to nine in Q1 2012). However,
Appleby predicts the number of IPOs is to rise.