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Megadeals fuel hot start to offshore transactions in 2015

The total cumulative value of offshore M&A deals and IPOs remained robust in the first quarter of 2015, with the average size of each deal among the highest on record, according to a report released today by Appleby.

The latest edition of Offshore-i, an Appleby report that provides data and insight on corporate transaction activity in the major offshore financial centres, focuses on deals announced during the first quarter of 2015. While there was a significant drop in the number of transactions when compared to the previous quarter, total deal value remained level due in part to three megadeals each worth in excess of USD5 billion.

“At more than USD68 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.”

There were 537 deals in Q1 2015, down 24 per cent from the previous quarter. Deal value in the first three months of year, however, registered at USD68.3 billion, which matches the previous quarter and is among the highest in the last decade.

This quarter’s average deal size came in at USD127 million, fuelled by 14 deals worth more than a billion dollars each, including three USD5 billion-plus deals and an additional two deals worth more than USD4 billion each. Looking back as far as 2004, there has only been one previous quarter that included three USD5 billion deals, and in that case, two of the three were related to a single transaction, the acquisition of TNK-BP.

Low interest rates and cash on balance sheets have helped drive big deals, while M&A has 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 found. There is also evidence that the rise of the megadeal is a global phenomenon that may be driven by more targeted M&A decision-making post-crisis, with acquirers willing to make sizeable investments but only after scrupulous analysis of targets.

“Last year was clearly the best year for offshore deal activity on record and the hot start to 2015 gives us reason to be optimistic,” says Frances Woo, Group Chairman of Appleby. “That said, we are ever watchful of potential bumps in the road, be they the result of the still ongoing uncertainty in the Eurozone, tensions between the West and Russia, the recent UK General Election and slower growth in parts of Asia. Offshore deal activity is robust, but ever-dependent on much larger constituents of the global M&A and capital markets.”

In nearly every quarter since Appleby began publishing Offshore-i in 2012, the Cayman Islands has dominated as the offshore jurisdiction most popular with investors. That proved to be the case again in the first quarter of this year, when Cayman saw 132 transactions, representing a quarter of all deals. Following Cayman was the British Virgin Islands with 85 deals, Bermuda with 84, and Hong Kong, where 80 deals were recorded.

Most offshore jurisdictions were down in deal volume, while value was generally up. Cayman enjoyed a bounce-back, with a 160 per cent jump in deal value when compared to the previous quarter, recording cumulative spending of USD17.4 billion in the first three months of the year.

Bermuda, which is nearly always one of the most active offshore locations despite having far fewer companies listed on its register compared to other jurisdictions, saw the highest cumulative deal value of Q1 2015. At USD19 billion, the jurisdiction accounted for 28 per cent of offshore deal value.

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. The report found that while the number of these deals dropped from the previous quarter, offshore jurisdictions spent USD84.7 billion in Q1 2015, an increase of 32 per cent over Q4 2014.

Additionally, the average value of outbound deals was USD156 million, a number that has not been seen in the last decade. Q1 2015 was only the third quarter since 2004 with an average deal size greater than USD100 million.

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