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Appleby reports offshore M&A growth for Q3 2012

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 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 Q3 2012.

In the third quarter of 2012 there was a 10 per cent drop in the volume, and a 17 per cent 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 per cent 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 USD78m – 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 target destination for investors, for the third quarter running, followed by Hong Kong, which witnessed a significant increase in the value of deals involving its companies as targets.

The offshore region ranks ninth amongst world markets by deal volume and fifth for value, significantly ahead of some “hot” markets including the Middle East and Oceania.

In the third quarter of 2012, the offshore market saw a drop in M&A activity levels as against Q2, falling from 475 to 428, with the cumulative value of transactions also declining from USD40.4bn to USD33.5bn. The report notes, however, that the lower levels of deal activity are unsurprising since Q3 is often quiet as transactions dry up in the summer months.

Looking at year-on-year comparisons in the offshore market, the report shows that while Q3 2012 volumes are down 16 per cent on 2011, the values are actually 11 per cent higher, suggesting that general robustness is returning to deal values.

According to the report, the average deal size in Q3 stood at USD78m, which although smaller than the previous quarter’s USD85m, remains strong compared to levels witnessed a year ago. In the last 10 quarters, only three three-month periods have seen a higher average deal size. The largest deal this quarter was the USD3.6bn stake taken in Bermuda-incorporated Vimpelkom, the Dutch telecoms provider, by Russia’s Altimo. This was followed by Taiwan’s biggest chipmaker, MediaTek’s USD2.1bn stake in Cayman-incorporated monitor maker MStar Semiconductor.

“While we remain quietly confident of the early signs of activity returning to our markets, it is still impossible to overlook the macroeconomic situation and the continuing gloom on our doorstep,” says Peter Bubenzer, Appleby’s group chairman. “The uncertainty in the Eurozone, which we hoped might reach some kind of resolution back in Q1, remains far from entering an end game, while the close race for the White House will, we suspect, have a profound effect on US transactions through to year end.”

Hong Kong is the story of the third quarter, with a 15 per cent increase in volume from 68 deals in Q2 to 78 deals in Q3, and a 72 per cent increase in value from USD4.6bn to USD7.9bn. The Cayman Islands meanwhile continues to hold the top spot for both volume and value of deals in Q3, generating 86 deals for Cayman targets worth a combined value of USD9.1bn.

It is the Isle of Man that 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 per cent increase in combined value from USD221m to USD430m.

The financial services sector accounted for 139 of the 428 deals this quarter, worth a combined value of USD4.2bn. Also of note was the USD2bn sale of the minority stake in insurer AIA Group to institutional investors from Hong Kong as well as the USD1.4bn sale of the holding entities of Conversus Capital, the Guernsey-incorporated asset management company, to HarbourVestPartners of the US.

Despite the obvious slowdown in consumer spending, the high-tech revolution continues to gather pace and drive M&A activity, in place of the energy and natural resources markets that accounted for four of the top 10 deals in Q2 and dominated offshore M&A in the first half of the year. This quarter, the telecommunications and related industries accounted for three of the top five deals and generated a cumulative value of USD8.3bn.

Of the 428 deals completed this quarter, minority stakes accounted for 56 per cent of the volume and 52 per cent of the value spent over the period.

Acquisitions of offshore targets meanwhile accounted for 150 deals against 167 in Q2 2012, and USD11.8bn of value compared to USD15bn last quarter.

Turning to IPOs, the report notes that there was a big drop-off between Q3 and Q2, with 35 IPOs and planned IPOs last quarter but only 17 this quarter.

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