Appleby, the world’s largest provider of offshore legal, fiduciary and administration services, today released the inaugural edition of Offshore-i http://www.applebyglobal.com/e-marketing/offshore-i-q1-2012–summary.pdf, which provides quarterly data and insight on merger and acquisition activity in major offshore financial centers. The report looks at M&A activity for the first quarter of 2012, providing sector analysis and expert insight on deal types and geographic trends.
The report highlights the Isle of Man’s solid position among the major offshore financial centers, completing 14 deals worth an aggregate value of USD 138m in Q1, 2012.
The key themes emerging from the report show:
• Total offshore deal values in Q1, 2012 increased by 25% from USD 23.2bn to USD 30.9bn.
• The number of transactions involving offshore targets in Q1, 2012 amounted to 412. While deal volumes were lower than the same period a year ago, 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.
• The banking, insurance and financial sector continues to dominate offshore activity, well ahead of its nearest comparator, wholesaling.
• Most of the deals in the quarter were minority stake transactions rather than full takeovers.
Nick Verardi, Practice Group Head for the Corporate & Commercial department in Appleby (Isle of Man) LLC said: “The Island has not been immune to the global economic pressures however it is encouraging to see continuing M&A activity in the first quarter. The most significant being the USD 100m strategic investment by TomCo Energy plc in Red Leaf Resources Inc, a Utah-based fuel transportation technology firm incorporated in the Isle of Man.
Appleby’s Offshore-i is an encouraging report and a real demonstration of the strengths and benefits of the Isle of Man as a jurisdiction for capital markets work. It also serves to highlight the Island as an effective base for holding companies contemplating a listing on AIM, the main market or elsewhere.”
In Q1 2012, offshore transaction values were significantly higher, with total value up 25% on the preceding three months. Conversely, 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 levels continue to be stagnant, according to the report.
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, according to the report. This impacted transactions in the offshore jurisdictions of Bermuda and the Cayman Islands, which derive the bulk of their business from the US. Continuing uncertainty about the Eurozone, and the potential contagion from Greece of a sovereign debt crisis into the Spanish and Italian markets hit deal drivers elsewhere. The threat of a slowdown to the seemingly unstoppable increase in transactions in China further dented confidence, the report states.
Nonetheless, the report found 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 activity, with the number of deals involving targets there jumping from six to 12 between Q1 2011 and Q 1 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 fuelling dealflow.
As highlighted in the report, a small number of large deals distorted the statistics, with the biggest transaction of the period, the USD 6bn acquisition by institutional investors of a 14% stake in AIA Group, the largest independent listed pan-Asian life insurance group in the world, far outstripping the USD1.5bn Cinven takeover of Jersey-headquartered CPA, one of the world’s largest legal process outsourcing and IP-management firms.
With respect to deals involving offshore acquirers, the Isle of Man completed two deals with an aggregate deal value of USD101m in the first quarter of 2012. By far the largest valued-deal of the quarter was from Jersey-registered Glencore, the commodities trading and mining company that agreed to buy Xstrata PLC for approximately USD40bn in shares in one of the biggest mergers ever seen in the mining sector.
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 IPOs hit a significant low (down from 34 in Q4 2011 to nine in Q1 2012). However, planned IPOs are on the rise.
“It will be interesting to see if this positive increase in values continues into the rest of 2012,” said Nick Verardi. “The challenges ahead are manifold, but there are ongoing signs of real buoyancy in Asian and other emerging markets.”
Though deals are down in the first three months of this year when compared to last quarter, the report notes that Q2 is usually more robust, pointing toward a busier few months to follow.