Offshore M&A drops but value remains high

Offshore M&A transactions fell by volume and value in the third quarter of 2012 compared to the previous three months, although by less than the drop recorded in 2011.

The third-quarter edition of offshore firm Appleby’s M&A report shows a 10 per cent drop in volume and 17 per cent drop in value of offshore transactions in the third quarter of this year when compared to the previous year.

However the average value of transactions was 11 per cent higher than in the same period in 2011, and at $78m, was higher than all but three of the preceding 10 quarters.

In the past three months there were 428 M&A transactions offshore, down from 475 in the second quarter of the year. The total value of transactions fell from $40.4bn (£25.3bn) to $33.5bn. Appleby’s report noted that the fall was similar to that recorded in many years with a summer slump in transactions.

Financial services accounted for over a third of deals, followed by telecoms.

The largest deal was the $3.6bn stake taken in Bermuda-incorporated Vimpelcom, the Dutch telecoms provider, by Russia’s Altimo. which completed in mid-August.

For the third quarter in a row, investors preferred the Cayman Islands as a target destination. However there was an increase in the value of deals involving Hong Kong companies as targets. The number of deals involving Hong Kong rose from 68 in the second quarter to 78 in the third, with a 72 per cent value increase from $4.6bn to $7.9bn.

But the biggest value increase came from the Isle of Man, with its 23 deals worth a combined $430m against $221m the previous quarter.

Appleby noted that minority stakes accounted for 56 per cent of deal volume and 52 per cent of deal value over the period.

“We remain convinced that this high volume of minority stake transactions is a function of the economic uncertainty with which investors are currently forced to grapple, which is deterring dealmakers from riskier whole-business transactions,” said Appleby chair Peter Bubenzer.

“Minority stake deals allow acquirers some exposure to new markets or businesses, while making it possible to limit that exposure to a comfortable level. At the same time, while gaining bank lending is challenging, such deals give sellers access to much-needed capital, and as a result we expect the trend towards this deal type to continue well into the next year.”

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