Appleby: Offshore Deal Value Continues to Rise

LONDON—May 19 2014—Total offshore deal value increased a dramatic 79% in the first quarter of 2014 when compared to the same period last year and was the highest it’s been since the end of 2012, according to a report released today by Appleby, one of the world’s largest providers of offshore legal, fiduciary and administration services. Considering the first quarter of the year is historically the quietest for dealmaking, the findings set the stage for what looks to be an active 2014.

The latest edition of Offshore-i, an Appleby report that provides data and insight on merger and acquisition activity in the major offshore financial centres, focuses on transactions announced during the first quarter of 2014, a period in which the firm observed a considerable uptick in deal size.

“The most significant conclusion to be drawn from the quarter’s figures is that we’ve turned a corner away from a difficult five years following the global financial crisis,” said Cameron Adderley, Partner and Global Head of Corporate & Commercial. “The number of deals in Q1 2014 was down compared to the previous quarter as expected, but total deal value and average deal size were up, setting the stage for a busy 2014.”

The M&A Environment

There were 572 deals in Q1 2014, down from the previous quarter but busier than the first quarter of 2013, which saw 528 deals. Though there were fewer deals, deal value came in at USD62.9bn—up 14% on the previous quarter and marking the fifth consecutive quarter for cumulative deal value growth.

This quarter’s average deal size of US110m is the highest in the past seven years, aside from the anomalous final quarter of 2012 when a single USD56bn transaction caused average deal values to spike. The growth in average deal size is the clearest sign yet of a new depth to the market, as investors become ever-more willing to put money to work on larger transactions, the report found. Additionally, total deal value in Q1 2014 has been topped only twice since the beginning of 2008.

There were 15 deals in excess of USD1bn in the quarter, including five worth more than USD2bn, and the deals spanned a wide range of sectors. Similar to the growth in average deal size, this spread of sector types indicates a depth returning to the market. Though the first quarter of 2014 marked one of the largest in terms of cumulative deal value in recent years, the report also sounds a note of caution.

“This sustained period of growth in M&A value is excellent news,” said Frances Woo, Group Chairman of Appleby. “However, there are potentially influential factors that we will be monitoring closely as the year progresses. Chief among them is the uncertainty around the escalation of tensions between Russia and the West over Ukraine.  We know that the Asian markets in particular can be sensitive to this type of negative news elsewhere in the world. Nonetheless we are expecting a consistent positive upward trend to continue.”

Cayman Leads as Target, Bermuda as Acquirer

Over the course of 2013, the Cayman Islands dominated as the target of most offshore M&A activity. That trend carried into Q1 2014, with Cayman attracting 164 deals with a cumulative value of USD20.7bn, accounting for 29% of the quarter’s offshore deals and exactly one third of the dollars spent. This puts Cayman well ahead of its nearest comparators which were, by volume of deals, the BVI where there were 107 deals, and Bermuda which announced 96 deals during the period.

Cayman posted 30 fewer deals than last quarter, but the deals completed were valued at USD2bn more than those completed in Q4 2013. The same trend can be seen in Hong Kong, to an even greater extent, where the number of deals was down from 100 in the last quarter to 89, but the amount of dollars spent nearly doubled from USD7.5bn to USD13.7bn.

Appleby saw the average deal size rocketing in these two jurisdictions, from USD94m to USD126m in Cayman, and from USD75m to USD154m in Hong Kong, which in the first quarter of the year was home to the largest average deal size. The first quarter of 2014 was also a standout quarter for Jersey, which saw 38 deals worth a combined USD5.6bn, compared to 50 deals worth just USD1bn in total in the previous quarter.

On the acquirer side, many of the big deals went through Bermuda, which recorded 50 transactions worth a combined USD20bn, giving an average deal size of just over $USD400m. Five of the 10 largest acquirer deals involved Bermuda-based businesses, with the USD5bn acquisition by Brookfield Property Partners of the 49% of commercial real estate developer Brookfield Office Properties that it did not already own, topping the list.

Key themes of Q1 2014:

•      There were 15 deals worth in excess of USD1bn this quarter, including five worth more than USD2bn, and these big deals spanned a wide range of sectors.

•      Financial services and insurance continues to be the most active sector, while retail, construction, and media and publishing also feature heavily.

•      The largest type of deal by both volume and value was minority stake transactions, which make up almost half of deal value this quarter.

•      There were 34 IPOs announced in the quarter worth a total of USD11.7bn. In the past decade, that cumulative value has only been topped on five occasions. Additionally, this quarter’s average IPO of USD345m has only been beaten once in the last decade.

•      The total value of deals involving an offshore acquirer was USD52bn. Only two quarters in the past four years have seen more money being invested by businesses incorporated offshore.

•      In this quarter, the offshore region trailed only North America, Western Europe and the Far East and Central Asia in terms of deal value. More money was spent offshore than was spent in Eastern Europe, which includes Russia, and Oceania, which includes Australia, combined.