The number and value of offshore M&A deals fell in 2016 when compared to a record 2015, a theme that played out in nearly every world region, according to a report released by offshore law firm Appleby.
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 over the course of 2016. With the volume and value of deals down on the previous year, the report found 2016 marked a return to business as usual as transactions reset to levels familiar before the 2015 outlier.
“It was clear from the start of 2016 that offshore deal activity was going to struggle to keep up with the phenomenal levels of M&A volume and value that were generated in 2015,” said Cameron Adderley, Partner and Global Head of Corporate at Appleby.
“While the outlook for 2017 remains fraught with uncertainty, many of the key drivers of a healthy dealmaking environment remain. They include companies looking to supplement limited organic growth through M&A, to improve margins by realizing synergies and to take advantage of the low cost of capital by making acquisitions."
Looking forward, the report points to four factors that will determine whether offshore M&A levels improve in 2017: progress between EU and UK officials on establishing a new relationship; changes to the international trade and immigration policy out of the US; China’s ability to manage its economic slowdown; and progress in the Eurozone’s continued economic recovery.
The M&A Environment Across Jurisdictions
In total, there were 2,895 deals targeting offshore companies in 2016, representing a total value of USD234bn, the report found. Each deal in the offshore top 10 was worth more than USD2bn, and the region saw a total of 46 transactions in 2016 each worth at least a billion dollars, double the typical total seen as recently as five years ago.
The largest offshore deal announced in 2016 was the USD6.3bn purchase of Bermuda-based property and casualty insurance services company Endurance Specialty Holding, one of two insurance sector deals in the top 10. Outside of insurance, the real estate sector also featured prominently in the top 10, with the biggest being the USD4.5bn sale of CITIC Real Estate Co & Tuxiana Corporation, incorporated in the British Virgin Islands and China, to China Overseas Land & Investment.
The Cayman Islands held on as the busiest jurisdiction for offshore transactions in 2016, recording nearly one-third of all deals and total deal value. The British Virgin Islands and Hong Kong were the standouts of the year as the only two offshore jurisdictions to see an increase in activity over 2015.
Acquirer Deals Involving Offshore Buyers Continues to Rise
Though the primary focus of Offshore-i is on transactions in which offshore targets are purchased by investors, the report also examines deals in which the acquirer is based offshore. For the last five years, the volume of acquirer deals involving offshore-incorporated buyers has increased steadily and is now at the point where more transactions are flowing out of offshore jurisdictions than are flowing in.
The year 2016 recorded 3,127 such deals worth a cumulative USD339bn. In the largest outbound deal of the year, Jersey-incorporated Shire acquired a Baxalta, a US-based manufacturer of pharmaceutical preparations for USD32bn.
“As with inbound deals, we see a healthy spread of sectors represented in the top 10 deals of the year involving an offshore acquirer, including energy, transport, data processing and software publishing,” said Adderley. “Dealmakers are establishing holding companies offshore to take advantage of the many technical, legal and regulatory advantages of these jurisdictions, and then using those companies to make acquisitions, sometimes back in their home country.”
Key Findings of 2016:
(Source: Offshore-i, Appleby)
