Offshore market performs robustly on international stage despite lacklustre quarter as Jersey sees deal value up 84% from previous quarter

Jersey, 16 May 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.

Jersey experiences uptick in M&A deals

The value of deals involving Jersey targets increased considerably as against Q4 2012, up 84% from USD519m to USD955m. Moreover, deal volume increased 10%, with the jurisdiction being the target of 31 deals, consistent with levels recorded in the same quarter of 2012. The USD645m acquisition of Cazenove Capital Holdings Ltd, a Jersey-incorporated, UK-based investment management company by Schroders plc, featured as a top 10 deal across the offshore region and was the largest deal for Jersey this quarter.

"It is really encouraging to see a rise in deal levels in Q1 and a general robustness returning to our shores,” said Wendy Benjamin, Practice Group Head for the Corporate & Commercial department in Jersey. “Jersey continues to attract investors from a range of sectors including financial services, mining and construction, and the Cazenove deal, in particular, suggests renewed confidence emerging in the UK fund management industry. The team at Appleby has been particularly busy this quarter and we were at the centre of a number of key deals in Jersey.”

The acquisition of minority stakes was the most popular deal type involving Jersey targets this quarter, with the jurisdiction completing 23 minority stake deals compared to only five acquisitions and two IPOs.

Where deals involved offshore acquirers, Jersey completed 23 deals worth a cumulative value of USD177m; a significant drop in value of 99.5% as against Q4 2012. It should be noted, however, that one of the largest global deals of 2012, the USD33bn purchase of Xstrata by Jersey-incorporated Glencore, took place in Q4.  

Global Offshore Market: Q1 2013

Looking at the global offshore market as a whole, the 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 USD28bn.

·         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.

·         When comparing the offshore region with the global market, offshore deal volumes were down only 10% year-on-year, compared to a global average drop of 20%.  

·         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% of the deals done in the first quarter of 2013, and 26% of the USD27.9bn spent.

·         The transportation sector boasted the largest average deal size this quarter, at USD226m.

·         The construction of buildings, a high growth sector, doubled in value from a year ago, despite deal volume decreasing from 13 transactions in Q1 2012 to 10 in Q1 2013.

·         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.

·         Deals involving Cayman-incorporated targets were the most popular for 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.

·         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. The USD7.8bn takeover of Singapore’s Fraser & Neave by BVI-incorporated TCC Assets was the largest offshore acquirer deal completed this quarter.

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 a disappointing 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. 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% year-on-year, compared to a global average drop of 20%.  

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 Holdings Limited. 

“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,” 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.”

Frances Woo, Appleby’s 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.”

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 USD909bn. At USD62m, the offshore market has generated the fourth highest average deal size, considerably ahead of Western Europe at USD40m and Asia at USD39m.

“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.”