Firm’s Offshore-i Report Reveals Q2 Transaction Values Outpace Many Of The Major Financial Markets

The offshore M&A market increased in value at twice the worldwide average last quarter, compared to the previous quarter, according to a report released today by Appleby, the world’s largest provider of offshore legal, fiduciary and administration services. The latest edition of Offshore-i, the firm’s quarterly report which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on Q2 2012.

The Cayman Islands took the top spot as the most popular destination for investors doing deals involving offshore targets. Cayman Islands had the highest aggregate deal value, US$19bn of US$37bn, representing 51% of the total deal value of all nine offshore markets included in the report. In addition, the Cayman Islands saw the greatest number of deals in Q2, 2012 of all offshore jurisdictions, with 104 of 447 total deals, representing nearly a quarter (23%) of the total number of offshore deals this quarter.

Top Deals

Much of this value was encapsulated by a number of large transactions including the take-private by Alibaba Group, a global e-commerce group based in China. The top deal was a US$7.1bn deal announced by the Alibaba Group to buy back 20% of its shares. The second-largest deal was a more than US$2.35bn acquisition by Alibaba.

Of the Top 20 deals in Q2, 2012 eight were in the Cayman Islands, including the top four deals. Other top deals included a US$1.8bn minority stake transaction announced by MStar Semiconductor Inc., an electronics manufacturer, and a US$1.5bn planned IPO by the Graff Diamonds Corporation, a high-end jewelry and watch manufacturer.

Eight of the top 20 rumored deals are located in the Cayman Islands as well.

Quarterly Comparisons

The Cayman Islands experienced significant growth in the second quarter – due largely to the Alibaba deals –with deal value and volume up 323% and 17% respectively from the preceding three months. In comparison with Q1 2012, there was an uptick in number of deals to 104 in Q2 from 89 in Q1, and an increase in aggregate deal value to more than US$19bn from US$4.5bn.

The Q2 2012 deal value is the highest in the Cayman Islands since Q4 2010 (with a reported deal value of nearly US$22.7bn and 222 reported deals). In comparison with the same quarter last year, Q2 2011, there was a 48% drop in number of deals from the 199 reported in last year’s Q2, but an increase in aggregate deal value of 51% from US$12bn aggregate deal value, indicating continued market consolidation.

“The Cayman Islands is the top location for doing deals involving offshore targets, in deal value and number of deals” notes Stephen James, global head of Banking and Asset Finance based in Appleby’s Cayman office. “Market consolidation continues apace, driving an increase in deal value and deal size.”

Global Offshore Market

Looking at the overall offshore market, the key themes emerging from the report show that in the second quarter of 2012:

• The value of deals involving offshore targets increased 12%, up US$3.8bn from the previous quarter – this compares to a 6% increase in the worldwide value, and vastly outpaces many of the major financial markets, including the United States and Asia.
• The number of deals involving offshore targets was down slightly, by 4%, from the previous quarter, and down 34% from the same quarter in 2011, an indication of continuing market consolidation exhibited by fewer, larger deals.
• The financial services sector continues to significantly dominate deal activity levels involving offshore targets.
• The top 20 deals of the quarter, as well as the largest pending or rumored transactions, paint a picture of ongoing confidence in Asia markets and in oil and gas, minerals and mining.
• The combined energy and natural resources sector continues to generate bullish deal flow, accounting for six of the top 20 deals of the quarter.

The overall deal value growth realized in the first quarter has continued into the second quarter of 2012, attributed in large part to the top eight deals which were valued at US$1bn or more each.

“This quarter we can observe a certain robustness returning at the larger deal end of the transactional landscape,” said Peter Bubenzer, Appleby’s Bermuda-based group chairman. Mr. Bubenzer also noted, “Financial sponsors find themselves sitting on cash that needs to be invested, and corporate balance sheets look strong and ripe for spending on the right deals in the right places.”

Comparing deals involving offshore targets to other world regions this quarter, the offshore market ranked fifth in deal value out of 13 designated, placing it ahead of Russia and Eastern Europe. Two years ago, the offshore market ranked sixth in deal value.

Looking forward, whilst it is unlikely that the floodgates will suddenly open for increased deal flow soon, a certain level of robustness is beginning to emerge in the offshore M&A figures.

Research Methodology:

Appleby’s Offshore-i report details mergers and acquisitions activity in Offshore jurisdictions in Q2 2012 using data from the ’Zephyr’ database, published by BvD. The Offshore region covers target companies in Bermuda, British Virgin Islands, Cayman Islands, Hong Kong, Guernsey, Jersey, Isle of Man, Mauritius and the Seychelles.

The date range is 01/04/2012 – 30/06/2012 inclusive. Deal status is as announced within the time period covered. Where necessary, deal values have been converted to USD at a rate set by Zephyr. Not all deals are reported immediately, so the figures are subject to change as new information becomes available.

The Q1 2012 figures in the Offshore-i Q2 report have been calculated as at 30/06/2012 and may differ from those in the Offshore-i Q1 report which were calculated as at 31/03/2012.