Offshore deal activity down, Cayman retains lead

Despite a significant drop in the volume of offshore transactions, the average size of mergers, acquisitions and initial public offerings reached the highest on record.

Law and fiduciary firm Appleby’s Offshore-i report covering offshore deals in the first quarter noted that while the number of transactions across jurisdictions dropped significantly compared to the previous quarter, the total deal value of US$68.3 billion remained the same on the basis of three mega-deals, each worth in excess of US$5 billion.

Cayman remains the most popular offshore jurisdiction for offshore deals, with 132 corporate transactions, representing 25 percent of all deals. The British Virgin Islands trailed Cayman with 85 deals, followed by Bermuda with 84, and Hong Kong, where 80 deals were recorded.

Mirroring the activity in other jurisdictions, Cayman saw lower deal volume but higher transaction values.

“Cayman was again a major contributor to overall offshore deal activity in the first three months of this year, accounting for a quarter of all transactions and 20 of the 34 IPOs recorded,” said Simon Raftopoulos, a Cayman-based partner and member of Appleby’s corporate finance and insurance teams. “Cayman also enjoyed something of a bounce-back in deal value, with a 160 percent jump over the previous quarter.”

All transactions involving Cayman entities totaled US$17.4 billion in the first three months of the year. Three deals exceeded US$1 billion, including the acquisition of Cayman-incorporated communication equipment manufacturer Highlight Holding by Bermuda-based Highlight China for US$4.7 billion.

While the majority of the report focuses on international acquirers buying offshore assets, Offshore-i also examined outbound deals in which an offshore jurisdiction acted as an acquirer. With US$31.2 billion, Cayman recorded the most spending on overseas transactions. This contributed to a quarter in which offshore jurisdictions spent a total of US$84.7 billion, an increase of 32 percent over fourth quarter 2014.

Overall, 537 first-quarter deals in 2015 represented a 24 percent decline from the previous quarter. However, the average deal value, which matched the previous quarter, is among the highest in the last decade.

“At more than US$68 billion for the first quarter of the year, cumulative deal value remains at the same high level as the preceding quarter, despite there being more than 150 fewer transactions,” said Cameron Adderley, partner and global head of corporate. “The result, clearly, is a bumper average deal size, which has been topped in only two quarters over in the past decade.”

This quarter’s average deal size of $127 million was boosted by 14 deals worth more than $1 billion each, including three $5 billion-plus transactions and two additional deals worth more than $4 billion each.

Since 2004, there has been only one quarter that included three $5 billion deals.

Low interest rates and cash on balance sheets have helped drive big deals, while mergers and acquisitions proved a quick way to add revenue at a time when existing markets are mature or subdued, and opportunities for growth appear limited, the report said.

There is also evidence that the rise of the mega-deal is a global phenomenon that may be driven by more targeted merger and acquisition decision-making post-crisis, with acquirers willing to make sizeable investments but only after scrupulous analysis of targets, Appleby said.

Offshore mega-deals also meant that the offshore region as a whole ranked second worldwide in terms of average deal size in the first quarter, trailing only North America. The offshore region ranked sixth in the world by deal volume in the first quarter and fourth in total transaction value.

The financial industry and insurance sector contributed most of the offshore transactional activity as three insurance-related deals featured in the top 10 for the quarter.