Bermuda Second In Offshore Deal Volume
Bermuda proved to be the second busiest offshore jurisdiction in the first quarter of 2013, with anecdotal evidence indicating a potential increase in Bermuda M&A activity in the near future, particularly in the insurance and energy sectors, 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 the first quarter of 2013. Overall, the first quarter of 2013 saw the lowest number of deals in the offshore region since Q1 2008, but the offshore market continues to perform relatively robustly when compared to its global counterparts.
Bermuda Second in Deal Volume Among Offshore Jurisdictions
While Bermuda experienced a drop in deal volume and value when compared to the same quarter of 2012, it still proved to be the second busiest offshore jurisdiction with 90 deals reported in the first three months of this year. Bermuda had been third behind Hong Kong in Q1 2012 and the final quarter of 2012, but only the Cayman Islands saw more deals than Bermuda at the start of 2013. Additionally, Bermuda’s 5.5% dip in deals from the 95 reported at the beginning of last year was smaller than the 10% decrease in deals across all offshore jurisdictions.
“In the first few months of the year, Bermuda again proved to be a resilient market that continues to attract dealmakers from around the world,” said Timothy Faries, Appleby’s group head of corporate and commercial in Bermuda. “While we did witness a drop in deal value and volume, it was smaller both compared to other offshore jurisdictions and markets around the world. It is typical for the first three months of the year to lag behind subsequent quarters and we are confident we will see these numbers strengthen in the second quarter of 2013.”
Bermuda’s largest deal was the USD568m acquisition of heavy sea transportation engineering and installation services holding company Dockwise by Boskalis Holding B.V., a subsidiary of Royal Boskalis Westminster N.V. Appleby acted as counsel in two of the three largest Bermuda-based transactions in Q1, including Dockwise, which was the eighth biggest deal of the quarter in the offshore market. In terms of total deal value for the first quarter of 2013, Bermuda’s USD $5.2bn represents a roughly 48 percent drop from the previous quarter and a roughly 46 percent drop from the first quarter of 2012.
On the insurance side, deals remain large in terms of value and a few recent transactions have been plays by US insurers to obtain a Lloyd’s syndicate. Lloyd’s has pretty much closed the door on new syndicates so merger remains the best option. There is also the feeling that insurers must become bigger to compete. Insurers with growth aspirations continue to look for opportunities. Some of the deals have been investor driven, where the major backers of start-ups over the last 10 years or so are looking to cash out.
Offshore Markets Lackluster, but Relatively Robust Compared With Global Markets
The report shows that 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 an alarming 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.
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 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. Indeed we hope to see volumes and values gradually strengthening in the months ahead.”
Global Offshore Market: Q1 2013
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, representing a 28% drop in volumes and a 73% drop in values against the previous quarter.
- 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.
- 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 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.
Global market comparison
The offshore M&A market continues to perform relatively robustly on the international stage, with offshore deal volumes down only 10% year-on-year, compared to a global average drop of 20%.
When comparing the offshore region with other major world markets, the offshore market ranked 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.”
