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 by Appleby.
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 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 per cent and value down a disappointing 73 per cent. 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 per cent year-on-year, compared to a global average drop of 20 per cent.
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.
“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,” says Cameron Adderley, global head of Appleby’s corporate and 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 (pictured), Appleby’s chairman, says: “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.”
There were 448 deals involving offshore targets completed with an aggregate value of USD28bn, representing a 28 per cent drop in volumes and a 73 per cent 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 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 per cent of the deals done in the first quarter of 2013, and 26 per cent 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 per cent 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 preceding three months.
Cayman-incorporated targets were the most popular in the offshore region this quarter, accounting for 102 of the 448 transactions.
Acquisition activity led by companies incorporated in offshore markets has slumped this quarter, with 352 deals worth an aggregate value of USD25.2bn.
