Appleby: Bermuda Records 420 Deals In 2016

March 31, 2017

Bermuda accounted for one-fifth of all offshore deal value in 2016 and was home to two of the 10 largest deals of the year, according to a report released by 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.

Similar to the offshore region as a whole, Bermuda experienced a reduction in deal volume and value in 2016 when compared to the previous year. However, the region’s average deal size of USD112m was greater than any other offshore jurisdiction.

“Bermuda was again a major hub for offshore dealmakers in 2016 and recorded the year’s biggest transactions in the insurance and mining sectors,” said Timothy Faries, Bermuda managing partner and group head of Corporate in Bermuda. “We expect this momentum to continue, with many key drivers of a healthy deal-making environment remaining in 2017.”

Bermuda recorded 420 deals worth a total of USD46.8bn in 2016, representing 20% of total offshore deal value. This included the biggest offshore deal of 2016 – the USD6.3bn purchase of Bermuda-based Endurance Specialty Holding, a global specialty provider of property and casualty insurance and reinsurance. Hong Kong-based CMOC Ltd acquired Bermuda-incorporated mining company Freeport-McMoRan DRC Holdings for USD2.8bn in another local transaction among the top 10 biggest offshore deals in 2016.

Bermuda’s new Limited Liability Company Act, the first new corporate structure available in 100 years, is expected to add another degree of flexibility for corporate transactions in 2017, according to the report.

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.

Outside of insurance, the real estate sector also featured prominently in the top 10 offshore deals of the year, 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 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, the report found.

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.

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. Bermuda saw a 10% rise in the value of deals involving a local acquirer, according to the report, which noted a trend of Japanese companies setting up Bermuda subsidiaries to use to facilitate the acquisition of Japanese assets.

“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 Cameron Adderley, Partner and Global Head of Corporate at Appleby.

“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:

  • The total value of deals involving offshore targets in 2016 was USD234bn, which is down from 2014 and 2015 but higher than previous years.
  • There were 2,895 deals involving offshore targets in 2016, representing a 7% drop from 2015.
  • The top 10 deals were each worth in excess of USD2bn, with the biggest deal being the USD6.3bn purchase of Bermuda-based property and casualty insurance services company Endurance Specialty Holding.
  • In all, 38 subsectors show substantial investment of at least USD1bn over the year, the highest spread Appleby has recorded in recent years.
  • The financial sector, which includes financial services and insurance companies as well as auxiliary firms such as brokerages, continues to dominate offshore deal activity. In all, this group reported 950 deals worth a cumulative value of USD65bn in 2016.
  • Cayman continued to be home to the largest number of deals, but Hong Kong and BVI, the second and third most active, were the only two offshore jurisdictions to see an increase in activity over 2015.
  • Similar to other major regions, offshore jurisdictions saw a drop in IPOs in 2016, with the final number of completed listings falling from 105 in 2015 to 81 last year. IPOs of offshore companies typically occur on the exchanges of Hong Kong, the US or London.
  • China is the main offshore investor into offshore-incorporated businesses, followed by the UK and the US.
  • Acquirer deals involving offshore-incorporated buyers increased steadily over the last five years, to the extent where there are more transactions flowing out of offshore region than there are flowing in.
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