Appleby Report: 2014 Peak Year for Offshore Deals

LONDON — 26 February 2015— The total cumulative value of offshore M&A deals and IPOs in 2014 spiked 63% over the previous year, making it the biggest year in terms of dollars spent offshore in the past decade, 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, 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 fourth quarter of 2014, as well as the year as a whole. The final quarter of the year maintained the run of 600-plus deals per quarter that started in early 2013, the report found.

“When looking at the year as a whole, 2014 saw 2,687 deals with an aggregate deal value of USD277bn, making it by far the best year for offshore-targeted M&A for the past decade,” said Cameron Adderley, Partner and Global Head of Corporate. “The year was up more than 60% in value terms over the previous year despite being broadly flat in terms of volume.”

The M&A Environment

In the fourth quarter of 2014, 628 deals were announced involving offshore targets, the report found. At USD69.2bn, the cumulative value represented an increase of 38% over the third quarter of the year.

While activity levels were similar to previous quarters, Q4 was second highest in terms of value in 2014 putting the average deal size at USD110m. That figure has been greater in only four quarters over the past 11 years and helped make 2014 as a whole the largest on record for average deal size, at USD103m. 

The final quarter of 2014 was also the fourth in the last five to record more than 10 deals worth more than a billion dollars each, after only four quarters in the preceding decade did the same. There were 12 deals worth at least USD1bn each in Q4 2014, and a mammoth 49 across the year, compared to 28 throughout 2013, according to the report. The strength of Q4 2014 can also in part be attributed to two megadeals worth more than USD5bn each.

“U.S. President Barack Obama called the end of the financial crisis in his State of the Union address in January, and that is a sentiment we tend to share,” said Frances Woo, Group Chairman of Appleby. “But still, global financial markets are far from stable and capable of seriously unsettling dealmakers at short notice. Faltering growth in parts of Asia, on-going government austerity programmes, fluctuating oil prices and a pending general election in the United Kingdom, may all have the capacity to dampen M&A activity during 2015.”

Cayman Maintains Lead in Deal Volume, Bermuda Tops Deal Value in Q4

The Cayman Islands remained the most popular destination for investors in offshore assets in Q4 2014, attracting 159 deals worth a cumulative USD15.6bn. This made Cayman the destination of choice for one in four offshore M&A deals and 23% of the dollars spent on offshore acquisitions during the quarter.

Bermuda, the report found, led the charge in terms of cumulative deal value seeing USD20.1bn spent on deals involving local targets. The jurisdiction was home to five of the 10 largest deals announced for offshore targets in Q4 2014, and is one of only three offshore jurisdictions measured in the report to experience an uptick in both deal volume and value when compared to the previous quarter.

The other two jurisdictions enjoying growth in value and volume are Jersey and Mauritius. Guernsey, meanwhile, matched the Cayman Islands for spending, receiving USD15.9bn thanks to its position as target to both of the megadeals announced in Q4.

Financial Services Dominate Offshore Activity

In the fourth quarter of 2014, insurance and financial services stood out as the dominant sector for offshore deal activity. The sector saw 161 deals with a cumulative worth of USD26.5bn, accounting for one in four deals done offshore in the time period and for more than a third of the dollars spent.

Meanwhile, the professional, scientific and technical activities sector ranked second in both value and volume, while a strong performance in the transport sector showed the movement of goods and resources is proving a hot area for investment.

Offshore jurisdictions also played a notable role in the global information technology sector over the course of the year, according to the report, which includes a “Spotlight” section on this fast-moving sector. In all, the offshore jurisdictions witnessed eight technology deals each worth over one billion dollars in 2014.

“The offshore world took its fair share of the technology action, most notably when Alibaba Group, the Chinese internet firm incorporated in Cayman, listed on the New York Stock Exchange to raise USD21.8bn in September,” Adderley said. “That far exceeded the USD16bn raised by Facebook in 2012.”

Key themes of Q4 2014:

There were 628 deals in the quarter, down on 689 recorded in Q3 but likely to edge higher as the flurry of year-end transactions is reported. This three-month period maintained the run of 600-plus deals per quarter that started in Q2 2013.

The value of deals was USD69.2bn, up 38% on the previous quarter and the second highest quarter of an exceptional year. Two megadeals each worth in excess of USD5bn were announced in Q4 after three announced in the first half of the year.

As a whole, the year 2014 was a peak year for value, with total deal value extraordinarily high at USD277bn, significantly ahead of a previous peak set in 2007.

This is the fourth quarter in the last five to record more than 10 deals worth over one billion dollars each. Forty-nine such deals were recorded across the year, compared with 28 in 2013.

The financial and insurance sector was once again on top, thanks to two deals worth north of USD5bn each. Deal value remains widely dispersed with 17 subsectors showing cumulative deal activity worth more than USD1bn each.

The most popular deal type is capital increase, a new definition to represent minority stake transactions that do not involve third-party acquirers.

The Cayman Islands dominated deal volumes as a top target. Bermuda, the BVI and Hong Kong were largely level-pegging behind, while in value terms, both Guernsey and Cayman sit on equal terms behind Bermuda.

Outbound deals involving offshore acquirers maintained high levels for every quarter of 2014, with 627 outbound deals worth USD55bn in Q4. The year was the busiest on record for outbound transactions.

The offshore region remains ranked sixth in the world by deal volume for Q4 2014, but rose back up two places to fourth for value activity.