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In most regions of the world, including offshore, the volume of deals has fallen back from the levels seen in the latter half of 2017. At the same time, value is firmly up and firms in the region as well as in Western Europe and North America in particular are benefitting from a resurgent world economy.
Companies, regardless of industry, have sought to head off technological disruption and bolster revenue growth through acquisitions. Strong fundamentals, including high levels of corporate cash and affordable and accessible credit, are undoubtedly underpinning activity. Relatively high share prices have also provided companies with a currency to complete stock deals.
M&A also depends on confidence and the markets continue to remain resilient in the face of several potentially negative factors; threatened trade wars, Brexit, unrest in the Middle East and unpredictable domestic politics, to name but a few. Dealmakers remain eager to grasp chances to make additions, sell-off inessential subsidiaries and complete strategic tie-ups to propel growth.
In the midst of this, the offshore region continues to play an important economic function. A recent research paper noted that by mitigating instances of double and triple taxation, offshore centres raise aggregate investment and we continue to see a very wide range of countries and industries taking advantage of these efficiencies.
From a technical perspective, M&A tends to follow a cycle of activity levels and the sustained bull run inevitably leads to speculation over a future retrenchment. We expect the second half of the year to be busy, but no one can afford to ignore the threats posed by rising interest rates, increasing protectionism, a possible trade war, seemingly unsustainable valuations and a volatile stock market. However, companies that are prepared to move swiftly and have clear targets and prices in mind will undoubtedly meet with success.
The finance and insurance sector alone accounted for a third of all offshore activity seen so far this year. The Financial services industry is undergoing a substantial shift with lenders, banks, insurers, fund managers and supporting companies’business models being upended by changing consumer demands, a new influx of competitors and increasingly onerous regulations.
With the costs of compliance and technology also going up, many firms have seen their profits squeezed. They need greater scale to respond, and M&A is the obvious solution. Mergers help spread out costs over larger platforms and allow companies to access emerging innovative technologies and modernize operating models.
Acquisitions of regulatory and compliance support services, as well as fintech companies are also attractive.
Bermuda reported a total of 146 in H1 2018, with a combined value of USD33.8bn. The total value of M&A transactions in Bermuda more than doubled in the first half of 2018 when compared to the final six months of the previous year, with the jurisdiction home to three of the offshore region’s 10 biggest deals.
BVI had a strong start to 2018, recording 236 deals worth a cumulative USD25.1bn. The BVI has shrugged off the considerable disruption caused by Hurricane Irma, with professional services firms able to continue providing key services to clients throughout, and reported activity levels are on a par with the previous year.
The Cayman Islands recorded more M&A transactions than any other offshore jurisdiction in the first half of 2018, while also seeing the total value of its deals increase by nearly 50% over the second half of 2017. Cayman-incorporated companies were the target of 421 transactions worth a combined USD60.9bn in the first half of 2018, representing 31% of all offshore deals and 28% of total offshore deal value during that time.
In the first six months of 2018, Jersey recorded a total of 75 deals, representing USD69.9bn in value, Guernsey recorded a total of 71 deals, representing USD1.6bn in value and the Isle of Man saw a 38% increase in the number of M&A deals compared to 2017 with a total of 29 deals valued at USD1.55bn.
Hong Kong saw deal numbers nudge up slightly year-on-year, with 334 transactions compared to 329 the year before. Value was USD22.1bn. Hong Kong continues to attract considerable investment from other offshore jurisdictions as well as from China.
Combined, Mauritius and the Seychelles announced 38 deals during the first six months of 2018, totalling an aggregate deal value of USD2.5bn.
The offshore region works as a place for transactions to smoothly occur and consequently sees a lot of activity as the base for an acquisition to be made from. Outbound activity continues to hold its own against inbound action, maintaining a lead of about 300 deals.
The top sectors on the acquisition trail are finance and information services, but these days they are now often hunting outside their own field. Finance companies are keen to gain a technological advantage while at the same time technology stalwarts are increasingly attempting to disrupt traditional business models, and are using M&A to gain access to new clients, licences and expertise. Cross-sector deals are expected to continue at a healthy pace.
In 2016, companies delayed IPOs amid heightened volatility in the financial markets. This pent up demand was released in 2017 and despite some stock market turbulence earlier in the year, 2018 has continued this trend, with 180 companies announcing their intention to go public. Most years have typically seen about 195 IPO announcements – over the course of the whole year. Robust M&A and IPO cycles tend to flow together, each feeding the other, so this continued strength is not surprising.