Merger activity in offshore financial centres declined by 24 per cent in the first quarter of 2012 compared with the previous quarter and the number of deals was 26 per cent lower than during the same period last year.
However, the value of the transactions increased by 25 per cent in the first quarter of 2012 from $23.3 billion in the fourth quarter of 2011 to $30.9 billion, according to Offshore-i, a report released by offshore law firm Appleby.
The report features quarterly merger and acquisition data in major offshore financial centres using data from the ‘Zephyr’ database published by Bureau van Dijk.
There were a total of 412 transactions in the first quarter of this year in Bermuda, the British Virgin Islands, Cayman Islands, Hong Kong, Guernsey, Jersey, Isle of Man, Mauritius and the Seychelles. 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 report concluded.
The most popular destinations for investors doing deals involving offshore targets are the Cayman Islands and Hong Kong, both by the continuing strength and attractiveness of the Asian markets. The report found there were marginally more acquisitions involving Hong Kong targets than those based in the Cayman Islands, 89 deals versus 87, a switch when compared with the 142 companies acquired in the Cayman Islands during the same period last year compared with 126 in Hong Kong during that time.
The increase in Hong Kong deals reflects the current macroeconomic environment, with Asia providing the source of a significant amount of deal activity, the report notes. Many of the deals going through Cayman in the first quarter of 2012 are likely to have had some Asian involvement as well, given that Cayman has emerged as a preferred jurisdiction for companies doing transactions across the Asia Pacific marketplace, Appleby said in a press statement.
Mauritius meanwhile, 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 Q1 2012.
“It will be interesting to see if this positive increase in values continues into the rest of 2012,” said Stephen James, partner in Cayman and Appleby’s global head of Banking and Asset Finance. “While many challenges are ahead, there are ongoing signs of real buoyancy in Asian and other emerging markets.”
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.
Most of the deals in the quarter were minority stake transactions rather than full takeovers.
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, up from seven in the last quarter to 16, suggesting positive news for the pipeline.
“Our markets are not immune to the global economic pressures, of course, and in the period under review the United States economy faltered amid fears that the recovery would continue to be lacklustre at best,” said Appleby’s Group Chairman Peter Bubenzer. “That inevitably impacted business in the offshore jurisdictions of Bermuda and the Cayman Islands, which derive the bulk of their business from the United States. Continuing uncertainty about the Eurozone, and the potential contagion from Greece of the sovereign debt crisis into the Spanish and Italian markets hit deal drivers elsewhere.”
Mr. Bubenzer said all jurisdictions are continuing to witness the conservatism that has become a mainstay of M&A today, driven by uncertainty about future growth prospects, liquidity challenges and pricing concerns.
“That said, experience tells us that deal activity is usually more robust in Q2 than Q1, and we have no reason to think this year will be any different,” he said.
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