Appleby reports stabilised offshore M&A activity in Q3 2013

Bermuda experienced a 10% increase in the number of mergers and acquisitions in the third quarter of 2013 when compared to the same quarter one year ago, 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, which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on the third quarter of 2013. Overall, the report struck a cautiously optimistic tone suggesting a return of investor confidence as indicated by the even distribution of deal values, an increase in the number of acquisitions and a shift of investment value from minority to majority stake purchases.

Bermuda holds strong position in deal volume for third quarter running

Bermuda continues to hold strong among the nine jurisdictions examined in the report and maintains the same position it held in Q1 and Q2 2013. In the third quarter, Bermuda was involved in 87 deals, a 10% increase over the same quarter in 2012, when the jurisdiction was home to 79 deals. The total deal value for Q3 2013 was USD5.8bn, making the average deal worth USD66.9m, which is above the offshore market’s average deal size of USD64m.

"Bermuda remains an attractive environment for dealmakers as shown by the sustained activity on the island,” said Timothy Faries, Appleby’s group head of corporate and commercial in Bermuda. "We are optimistic this trend will continue through the end of the year as deal activity in Bermuda, along with other offshore economies, continues to stabilise.”

Bermuda among key financial centres attracting large private equity deals

Q3 2013 saw three institutional buyouts with a combined worth of USD834m. The return of these deals – the most common private equity structure for mid to large transactions – marks a positive step forward for the private equity industry, where offshore activity in recent years has been heavily focused on smaller management buyout deals. In Bermuda, construction piling company Tysan Holdings was purchased by Tides Holdings, a wholly owned subsidiary of Blackstone, for USD320m. In another major private equity deal, Blackstone Group purchased Cayman Islands banking services software developer Pactera Technology, and four sponsor-led M&A deals feature in the Top 20 largest upcoming deals.

Offshore Transactional Markets Stabilise

Across offshore markets, the third quarter of 2013 has seen the number and value of deals stay consistent with both Q1 and Q2 2013, indicating transactional activity is continuing to stabilise.

Cameron Adderley, Partner & Global Head of Appleby’s Corporate & Commercial group comments: "The offshore markets, which represent critical links in the global supply chain of trade and investment flows worldwide, are exhibiting signs of robustness after several years of volatility. That is a development we have been looking out for since we began our Offshore-i series, and we view it as a critical requirement of a sustainable macro-economic recovery.”

In Q3 2013 the offshore markets rank fifth globally in terms of cumulative deal value, with more money spent on offshore businesses than on those in Africa, the Middle East, Oceania and South and Central America. Average deals size is USD64m in Q3 compared to a global average of USD62m, ranking the offshore markets third globally. Only North America and South and Central America can boast larger average deal sizes this quarter and offshore compares well against Western Europe at USD46m and the Far East and Central Asia at USD48m.

Frances Woo, Appleby’s Group Chairman comments: "The evidence provided by the Q3 figures means that we continue to be cautiously upbeat about the prospects for our offshore region and therefore the wider economic landscape. However, we do not shy away from recognising that we are entirely interconnected to the global economy. The other major economic regions in which our clients operate are critical to the offshore revival, and whilst the signs from the United States economy have been broadly positive throughout 2013, the budgetary impasse that caused the shutdown of the federal government in October may yet seriously affect confidence and deal flow around the world.”

The key themes emerging from the report show:

•          In the third quarter of 2013 there were 538 deals announced offshore, with a combined value of USD34.5bn. This puts the quarterly activity levels slightly ahead of Q2 2013.

•          In Q3 2013 average deal size stood at USD64m, and that figure is almost the same for the year to date which is USD65m. If this is maintained to year end, or improved, deal sizes in 2013 will be greater than they have been in at least seven of the last ten years.

•          There are six deals worth over USD1bn this quarter. The top 10 deals make up just over a third of the total value of the quarter, a consistent ratio for 2013 and a positive sign of depth returning to the markets.

•          Deals are taking place across the value chain and with some consistency in distribution: USD8bn-worth of USD1bn-plus deals; and USD6bn-worth of each of four other categories: sub-USD100m, USD100-250m, USD250-500m and USD500-1bn.

•          Financial services and insurance continues to be the most active sector, with manufacturing also particularly busy this quarter.

•          Minority stake deals continue to be the most prominent, but account for less total deal value than in the same quarter of last year. A year ago, in Q3 2012, 57% of dollars spent went on minority stake deals, but today that spending has halved. Meanwhile, IPOs and buyouts are making a comeback.

•          Acquisition activity led by companies incorporated offshore increased in volume but dropped in value, and there were 512 deals with a cumulative value of USD26.8bn, up 14% in terms of volume and down 21% by value.

•          By average deal size the offshore region ranks third globally, behind only North America and South and Central America in Q3.