The Cayman Islands remained the main jurisdiction for offshore mergers and acquisitions in 2017.
About one-third of all deals and total deal value involved Cayman, offshore law firm Appleby noted in the latest edition of Offshore-I, a report that provides data on M&A transactions in the major offshore financial centers.
The report highlighted a general increase in deal activity and found that 2017 was the busiest year on record for offshore initial public offerings (IPOs).
“Cayman continued to lead the pack in offshore deal volume and value in 2017, accounting for the largest portion of the offshore region’s deal activity and three of the year’s four largest offshore deals,” said Simon Raftopoulos, partner and group head of Appleby’s private equity practice in the Cayman Islands. “Increased deal flow from U.S.-based corporations and private equity firms contributed to the offshore region’s encouraging performance.”
Cayman main target for investors, IPOs
Cayman-incorporated companies were the target of 839 transactions worth a combined US$78 billion. This represented 34 percent of the total offshore deal value. The number of transactions in 2017 was up from the previous year’s total of 773. However, the deal value declined slightly from $79 billion in 2016.
The largest offshore deal of 2017 was the US$6.8-billion purchase of all the issued shares of Belle International, a Cayman-incorporated footwear manufacturer listed on the Hong Kong Stock Exchange.
Two of the year’s three offshore megadeals above $5 billion involved Cayman entities.
In addition to mergers and acquisitions, the number of IPOs also expanded significantly to over 300, making it the busiest year on record, Appleby said.
Cayman-incorporated companies were responsible for most initial stock market listings with 179 IPOs completed over the course of the year.
The offshore M&A environment
There were a total of 2,771 deals targeting offshore companies last year for a total value of $227 billion, an increase over the 2,735 deals worth $219 billion in 2016.
Hong Kong and the British Virgin Islands trailed Cayman’s 773 transactions with 592 and 505 deals, respectively.
The finance and insurance sector dominated the offshore landscape in terms of deal value but acquisitions in the real estate sector set the theme for this year’s highest value deals. Software development also continues to attract significant acquisitions, as companies compete to build market share in this rapidly evolving sector, Appleby found.
While 2017 may have been a record year for offshore deals, the Appleby report predicts some headwind, including U.S. tax reform, regulatory scrutiny, the Chinese government’s concern over outbound deals and the deployment of private equity.
Despite new regulatory restrictions, China continued to be the dominant acquirer of offshore targets, followed by the U.K., Taiwan and the U.S.
After a relatively quiet 2016, private equity and venture capital-backed transactions returned with 128 offshore deals for a total value of $40 billion, the report noted.
Offshore companies more active acquirers
While the main focus of the Appleby report is on transactions in which offshore companies are the targets of acquisitions, it also examines deals in which the acquirer is based offshore.
The levels of inbound and outbound offshore deal activity used to be about equal until 2014. Since then, offshore companies have come to dominate as acquirers, a trend that continued last year.
In 2017, offshore companies recorded 3,313 such deals worth a cumulative $347 billion.
They mainly targeted companies in China, the U.S., India and the U.K. but also in smaller markets, as illustrated in the $1-billion institutional buyout of Portugal’s Novo Banco by Bermuda-registered private equity firm, Lone Star.
The top outbound deals over the year were spread across the logistics, manufacturing and banking sectors.