Appleby Reports Offshore M&A Activity for Q1

New York, May 16, 2013 – 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 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.

Global Dealmakers Nervous But Positive Signs Emerge from U.S.

The report shows 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 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. 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. Further, comparing the offshore region with the global market, offshore deal volumes were down 10% year-on-year compared with a global average drop of 20%.  

“The fortunes of the offshore world are, of course, entirely entwined with those of the 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.”

Signs of optimism include the strengthening U.S. economy, the relative health of strategic buyers, the emerging markets and the energy sector, the report notes. Anecdotal evidence suggests that activity levels are strengthening, in part due to deals that are in the pipeline, but also thanks to private equity-related transactions that are not publicly evident yet. The report adds that while the outlook for the remaining nine months of the year is uncertain, the big questions that troubled investors in 2012—including the U.S. presidential elections and immediate threats posed by America’s Fiscal Cliff—are now behind us.

Frances Woo, Appleby’s Group Chairman said, “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.”

U.S. Insurers Contribute to Potential Upswing in Bermuda M&A Activity

Anecdotal evidence points to an upswing in M&A activity in Bermuda, with a number of deals in the insurance and energy sectors, the report noted. On the insurance side, deals remain large in terms of value, and a few recent transactions have been plays by U.S. insurers to obtain a Lloyd’s syndicate. Because Lloyd’s has essentially closed the door on new syndicates, mergers remain the best option. There is also the feeling that insurers must become bigger to compete.

Michael Kors, Stryker are Among Biggest Offshore Deals

Unlike previous three-month periods, the start of 2013 saw just two deals announced offshore in excess of $1 billion (compared with 10 such deals in Q4 2012). These transactions were Basic Energy’s $2 billion joint venture to create Grandway Group and the announced sale of 25 million shares in BVI-based fashion label Michael Kors for $1.5 billion. In the Michael Kors transaction, shareholders including Hong Kong private equity firm Sportswear Holdings offloaded shares representing about 10% of the company, cashing in on the stock’s strong performance thanks to bullish demand for its high-end handbags, clothing and footwear.

The Michael Kors deal was the largest in the manufacturing sector, which with 70 deals, comprised 16% of those done in the first quarter of 2013, and 26% of the $27.9 billion spent. That sector also saw New York-listed and Cayman-incorporated WSP Holdings, a Chinese manufacturer of casing, tubing and drills used by the oil and gas industry, taken private in a deal that valued the business at $890 million. In another deal, medical devices group Stryker Corporation of the United States paid $685 million for Cayman-incorporated Trauson, the leading trauma manufacturer in China and one of its major competitors in the spine segment.

Carl Icahn Rumored Deal

The largest deals categorized as rumored this quarter are acquisitions, with billionaire investor Carl Icahn’s announced interest in Cayman Islands-based weight management company Herbalife as a potential forerunner to the $3.9 billion acquisition of the company.

Global Offshore Market: Q1 2013

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 $28 billion, representing a 28% drop in volumes and a 73% drop in values against the previous quarter.

♦       The average offshore deal size was $62 million 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 $66 million through those eight quarters.

♦      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 $27.9 billion 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 the offshore market this quarter, accounting for 102 of the 448 transactions.

♦      The British Virgin Islands (BVI) market continues to top deals by acquirer. BVI acquirers spent more than twice as much money this quarter as they did in Q4, completing 125 deals out of a total 352 transactions recorded, worth an aggregate value of USD13.1bn.

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 $909 billion. At $62 million, the offshore market has generated the fourth highest average deal size, considerably ahead of Western Europe at $40 million and Asia at $39 million.

“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.”