The combined value of offshore deals in the second quarter of 2014 jumped 23% over the previous quarter, making it one of the highest value quarters of the past decade, according to Appleby.

Given that the first half of the year is frequently quieter than the second half, Appleby said this is encouraging news for the remainder of 2014.

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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 during the second quarter of 2014, a period in which the firm observed a considerable uptick in deal size.

"For six consecutive quarters total deal values have either increased or remained level, and the last three quarters have seen values jump more than 20% on the quarter previously," said Cameron Adderley, Partner and Global Head of Corporate & Commercial. "Companies appear to be putting more money to work on offshore deals, and an upward trajectory is gathering momentum."

The M&A Environment

In the second quarter of 2014, 632 deals were announced involving offshore targets, which in combination were worth USD80.9bn. The number of deals is almost identical to the 642 deals recorded in the first quarter of the year.

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The average deal size of USD128m in the second quarter of the year is the highest in the past decade, aside from the anomalous final quarter of 2012 when a single USD56bn transaction caused average deal values to spike.

The firm attributed part of the quarter’s total deal value to the USD20bn planned IPO of Alibaba Group, the Cayman Islands incorporated ecommerce site, which is headed for the New York Stock Exchange. Still, with three deals worth north of USD2bn, even if the Alibaba transaction is excluded, the report found the quarter records a cumulative three-month deal value that exceeds anything seen in 2013.

While the numbers are largely positive, the report strikes a cautionary note due to uncertainties in some global markets, including North America and Russia.

"We have come to appreciate the health of the offshore markets as a welcome sign of returning strength on a global level, and we hope that this proves to be the case," said Frances Woo, Group Chairman of Appleby. "Nonetheless, we remain cautious as the second quarter witnessed a 14% drop in deal value in North America, and tensions between Russia and the West over Ukraine could yet have a significant impact on regional and even global M&A activity."

Cayman Leads in Deal Value and Volume

The Cayman Islands continued to be the busiest offshore destination in Q2 2014 with 205 deals announced worth a total of USD40.6bn. The jurisdiction accounted for 32% of all offshore deals and half of all dollars spent on offshore targets. The number of local deals was up 45% when compared with the same quarter last year, and the jurisdiction’s deal value was up 267% as a result of the planned Alibaba Group IPO.

The British Virgin Islands (BVI) ranked second by number of deals with 112 and Hong Kong followed closely with 100. In terms of value, Cayman was followed by Hong Kong, which had a cumulative value of USD14.5bn, and BVI, where deals totalled USD10.7bn.

Key Themes of Q2 2014:

  • There were 13 deals worth in excess of USD1bn this quarter, compared to four in Q2 2013. Four deals were worth over USD2bn.
  • The most popular type of deal was once again minority stake transactions, which accounted for more than half of all offshore deals.
  • There were 52 debut listings either announced or completed by offshore companies in the period, a substantial increase over the 34 seen last quarter and the 39 seen in Q2 2013.
  • Half of the top 10 deals this quarter involved online businesses. Information and communication was the leading target sector replacing financial and insurance for the first time since the end of 2012.
  • Among world regions such as North America, Western Europe and the Middle East, offshore remains at sixth by deal volume for Q2 2014, and retained the fourth spot in value terms, which it reached for the first time in Q1 of this year.
  • Averaging over the 61 working days in this quarter, USD1.3bn was spent each day on an offshore transaction, up from USD1bn per day in the preceding quarter.
  • While the bulk of the report focuses on international acquirers buying offshore assets, the report also looked at outbound deals in which an offshore jurisdiction acted as an acquirer. It found the total value of such deals was the highest quarterly amount reported in a decade — with USD84bn spent overseas by offshore companies.