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Bermuda moves up to second in offshore deal volume

Bermuda proved to be the second busiest offshore jurisdiction in the first quarter of 2013 according to a new report released by Appleby, one of the world’s largest providers of offshore legal, fiduciary and administration services.

According to the firm’s latest edition of Offshore-I, a quarterly report that provides data and insight on merger and acquisition activity in major offshore financial centres, there is anecdotal evidence indicating a potential increase in Bermuda M&A activity in the near future, particularly in the insurance and energy sectors.

While Bermuda experienced a drop in deal volume and value when compared to the same quarter of 2012, it continues to perform strongly in the M&A market, being the target of 90 deals worth a cumulative value of $5.2 billion. This represents a roughly 48 percent drop from the previous quarter and a roughly 46 percent drop from the first quarter of 2012.

Still, Bermuda 5.5 percent dip in deals from the 95 reported in the first quarter of last year was smaller than the 10 percent 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.”

And despite the drop, Appleby reports Bermuda was able to move up and become the second busiest offshore jurisdiction in the world after coming in third behind Hong Kong in Q1 of 2012 and the final quarter of 2012. Only the Cayman Islands saw more deals than Bermuda in the first three months of this year.

Bermuda’s largest deal was the $568 million acquisition of heavy sea transportation engineering and installation services holding company Dockwise by Boskalis Holding BV, a subsidiary of Royal Boskalis Westminster NV. 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.

On the insurance side, deals remain large in terms of value and a few recent transactions have been plays by US insurers to obtain Lloyd’s syndicate. Lloyd’s has pretty much closed the door on new syndicates, so merger remains the best option for companies looking to break into the London market.

“There is also the feeling that insurers must become bigger to compete,” the Appleby report said. “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 ten years or so are looking to cash out.”

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 percent and value down an alarming 73 percent. 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 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.”

While offshore markets were lacklustre in the first quarter, they seem relatively robust when compared with other global markets. Offshore deal volumes were down only 10 percent year-on-year, compared to a global average drop of 20 percent.

“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 percent of the global total of $909 billion. At $62 million, the offshore market has generated the fourth highest average deal size, considerably ahead of Western Europe at $40 million and Asia at $39 million,” the report said.

“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,” Appleby’s chairman, Frances Woo said. “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 percent aggregate deal value growth seen in North America in Q1 2013 against a year ago should give us all a reason to be cheerful.”

Offshore Activity: Bermuda ranks second in deal volume among offshore jurisdictions for Q1 2013.

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Published May 17, 2013 at 9:00 am (Updated May 16, 2013 at 7:09 pm)

Bermuda moves up to second in offshore deal volume

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