Offshore M&A seems to be returning to steady growth, and as Appleby chair Frances Woo points out, the lack of dramatic movement is a good thing.
As our upcoming offshore survey will show, the mood among those lawyers practising in the jurisdictions which supporters call ‘international finance centres’ and detractors ‘tax havens’ is pretty good right now.
After a few years of uncertainty – with a distinct up-and-down trend in deal volume and value – the last quarter of 2013, and by extension the full year, shows some positive trends.
Offshore firm Appleby analyses M&A activity around the world every quarter, and its most recent report is full of positive messages for its fellow offshore firms as well as those onshore outfits which instruct them.
The report shows that the fourth quarter of 2013 was the busiest of the year in terms of deal numbers. The 607 transactions reported between October and December marked a consistent upswing throughout the year.
Deal value was also high. The cumulative deal value of $151bn for the year has only been topped three times in the last decade (in 2007, 2010 and 2012). Meanwhile the average deal size for the year, of $67m, was also only beaten in those three years.
The report notes, quite rightly, that the 2012 figures (21 February 2013) in particular are massively skewed by two huge deals. Both the $56bn sale by BP of its stake in TNK-BP to Rosneft (22 October 2012), and the $76bn merger of Glencore and Xstrata (2 February 2012) involved offshore elements, with firms including Conyers Dill & Pearman, Harneys and Mourant Ozannes winning roles on those transactions.
Last year, by contrast, had no such standout deals – merely a steady flow of somewhat more modest transactions. Appleby identifies the acquisition of US pharmaceutical group ViroPharma by Jersey’s Shire for $4.2bn as the largest transaction of the last quarter.
Appleby chair Frances Woo says the steady growth is a good thing. “If it had gone gang-busters and risen very rapidly, there’d be a lot more cause for concern,” she notes.
The report notes that the 10 largest transactions last quarter contributed 32 per cent of total deal value, the lowest percentage in the last four years. However there were only six deals valued at between $500m and $1bn.
“What we haven’t seen in a substantial way is a big uptick in the upper mid-market yet, although it’s picking up,” Woo notes. “If we start seeing a lot more of that that reflects a much healthier market.”
Something which is definitely picking up is capital markets. Planned IPOs were the third-largest deal type by volume and value in the last quarter of 2013, with 47 listings announced worth a combined $4.5bn. In contrast, there were only 14 planned IPOs in the same quarter of 2012, worth $877m.
Further analysis shows that there were 62 IPOs pending or completed in the last three months of 2013, compared to only 28 in the same quarter of the previous year. Average IPO size for 2013 was also up significantly, at $99m for the year against $63m in 2012.
In terms of geography, the Cayman Islands dominated over the year, but Bermuda had a storming fourth quarter. It recorded 116 deals with a total value of $15.3bn, against the 168 deals totalling $15.6bn in Cayman.
Woo thinks this pickup is connected to the fact the US is also coming back to health, given that much of Bermuda’s work has historically been linked to the US and Latin America.
“That’s reflective of where we are in the cycle,” she says. “The US went into the global economic crisis before everyone else.”
Appleby also highlighted strong performances by the Isle of Man and Mauritius in the last three months of the year. There were 28 deals worth $1.5bn in the last quarter of 2013 in the Isle of Man, almost double the value of the previous quarter. In Mauritius, there were 19 deals with $364m – a 58 per cent increase in volume and 88 per cent rise in value on the previous three months.
In contrast to deal values dropping off in North America, Western Europe and the Far East and Central Asia in the last quarter, values rose offshore. As a region, offshore ranks third globally for average deal size, fifth for total deal value, and sixth for volume.
Overall, Woo says the figures give rise to cautious optimism. “What’s positive is that we’re seeing more acquisitions as opposed to minority stakes,” she thinks. “The effects of the past five years aren’t going to fade away overnight, but that’s not necessarily a bad thing.”