PRIVATE EQUITY TRANSACTIONSOFFSHORE 2015

ContentsIntroduction 2 The PE environment 3 Investment activity 5Exit activity 9

NOVEMBER 2015

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SECTOR SNAPSHOT

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Welcome to this spotlight edition of our quarterly Offshore-i report, looking specifically at the transactions taking place in

the private equity (PE) industry offshore markets, where Appleby conducts the majority of its business. We have analysed data on investment activity in the form of buyouts, and exits, whether via initial public offerings, sales to other private equity firms, or trade sales.

Private equity activity has long been a significant feature of the offshore M&A landscape, and indeed our data shows that, since the start of 2014, on average one in five deal dollars per quarter was spent on an offshore transaction that involved a private equity sponsor. In the third quarter of 2015 PE activity was even more significant than usual; there were 660 offshore deals altogether in the quarter, worth a total of USD60.7bn, and of those, 26 involved PE firms either acquiring investments or exiting. With a combined worth of USD16.1bn, private equity deals therefore represented over a quarter of total offshore activity by value in Q3 2015.

2015 is well on track to be the best performing private equity year offshore in the past five years. The year-to-date total deal value for 2015 currently stands at USD56bn, not far behind the 2014 annual total of USD60bn with three months to go.

The largest PE transaction announced this year involving an offshore target is the USD4.3bn deal by Hutchison Whampoa, owner of the new parent company of telecoms groups O2 and Three Ireland, to bring in a group of co-investors to buy new shares in the business. It is one of seven USD1bn+ PE transactions involving offshore targets. Fueled by the massive growth of financial assets that have been building in the global economy over the past two decades or so Private Equity’s impressive rebound continues. In today’s world of super abundant cash, high acquisition prices may yet challenge Private Equity returns long term, but so far not yet.

Over the following pages, we analyse the transactions that have taken place involving private equity firms offshore so far this year, looking in depth at the sectors, deal types and geographies that are proving most active. We hope that you will find our insights useful.

Should you have any questions, or wish to discuss anything in more detail, please do not hesitate to get in touch, either with myself, or with your usual Appleby contact.

November 2015

INTRODUCTION

Simon RaftopoulosPartner, Global Head of Private Equity

“ With a combined worth of USD16.1bn, private equity deals represented over a quarter of total offshore activity by value in Q3 2015.”

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Up until the end of 2013, PE transactions accounted for 14% of all quarterly offshore deal value on average, but since the start of 2014 that proportion has gradually increased. In the last seven quarters, we see an average of 20% of deal value offshore going to private equity deals, and in Q3 2015 alone, that share stood at 27%. In total there were 660 deals worth USD60.7bn in the offshore M&A markets, of which private equity accounted for 26, worth USD16.1bn.

InvestmentsSeven PE investments alone in 2015 accounted for 79% of the year’s PE deal value so far, with those worth north of USD1bn combining to contribute a massive USD15.9bn to the annual total as it stands at the end of Q3 2015.

The largest deal announced so far this year is the USD4.3bn deal by Hutchison Whampoa, owner of the new parent company of telecoms groups O2 and Three Ireland, to bring in a group of co-investors to buy new shares in the business. The USD3.3bn institutional buyout of Wuxi PharmaTech, a pharmaceutical and biotechnology research business incorporated in the Cayman Islands, by a group of investors is another significant transaction, as is a third deal worth USD3bn+: the USD3bn acquisition of a minority stake in Ziaoju Kuaizhi Inc, a mobile taxi-booking app business incorporated in the Cayman Islands, by a consortium of investors including sovereign wealth funds.

The total sum of 2015 investments is likely to end up topping anything seen in the previous five years, with more private equity money chasing a limited supply of companies resulting in even higher valuations.

THE PRIVATE EQUITY ENVIRONMENT

“ With three months still remaining, the year 2015 looks likely to be best by PE deal value for at least the last five years.”

QUARTERLY OFFSHORE DEAL VALUE Q1 2011 - Q3 2015

TOP FIVE PE INVESTMENTS BY VALUE2015 YTD (USDbn)

0

50

100

150

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

2015 2014 2013 2012 2011

US

D b

illio

n

Other deals All PE Exits & PE deal financing

Hutchison 3G UKHoldings (CI) Ltd

Wuxi PharmaTech(Cayman) Inc.

Xiaoju Kuaizhi Inc.

Fidelis InsuranceHoldings Ltd

JD.com Inc.

4.3

3.3

3

1.5

1.4

Telecommunications

Pharmaceutical

Non-life insurance

Online retailer

Mobile taxi booking service

Cayman

Bermuda

Jurisdiction Key

The first nine months of 2015 have been amongst the top performing in terms of deal value going into PE transactions offshore. So far this year, the offshore region has witnessed 92 deals worth a combined USD56bn, as against 102 worth USD60bn for the whole of last year. With three months still remaining, the year 2015 looks likely to exceed deal values for any of the last five years.

When we split the numbers out into investments and exits, we find a fairly even cut, with 41 investments by PE firms in offshore targets having taken place so far this year, and slightly more exits. The exits typically command more value, with the average value of an investment in 2015 coming in at USD490m, and the average exit worth USD673m.

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0

15

USD

(bn)

30

45

2011 2012 2013 2014 2015 to date

ExitsWhen we turn our focus to exits, the distortion at the top end of the value scale is even more pronounced, with nine deals out of 55 worth in excess of USD1bn, and those nine accounting for 82% of the year’s value so far. In all, the nine largest exits by private equity firms in 2015 were worth USD30.2bn, out of a nine-month total value of exits that stands at USD37bn.

2015 looks set to overtake the record exit total set last year of USD41.2bn. Market conditions are proving highly supportive to the exit value aims of the PE industry. Cash-rich corporate buyers are looking for elusive growth, and are prepared to spend heavily on PE-owned companies that fit their strategic goals.

THE PRIVATE EQUITY ENVIRONMENT cont’d.

“ 2015 looks set to overtake the record exit total set last year of USD 41.2bn”

TOP FIVE PE EXITS, 2015 YTD (USDbn)

TOTAL PRIVATE EQUITYEXIT VALUE 2011-2015 YTD

Freescale Semiconductor LtdElectronics manufacturer

Iron Mining International (Mongolia) Ltd Shiny Glow Ltd, Mining

Guardian Holdings Europe LtdLife insurance

Ironshore Inc.Insurance

Dali Foods Group Co., LtdFood manufacturer

16.7

2.8

2.5

2.1

1.5

Cayman

BVI

Jersey

Bermuda

Jurisdiction Key

Four offshore exits were each worth more than USD2bn in value for private equity vendors in the first nine months of 2015, with the largest being the mammoth USD16.7bn public takeover of Freescale Semiconductor, a semiconductor manufacturer based in Bermuda, by NXP Semiconductors of the Netherlands. The sale marks an exit for TPG Capital Management, Permira Advisers, Carlyle Group and Blackstone, who first bought in to the business nearly nine years ago.

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Deal typesTurning our attention to the investments being made in offshore targets by private equity acquirers, we find that the majority of deals taking place involve minority stakes changing hands. These transactions involve an initial stake in a company being acquired by a PE firm, or an addition to an existing stake being bought for strategic purposes.

In all, 22 of the 41 offshore private equity investments that have taken place in 2015 to date have been minority stake deals. With a combined worth of USD8.4bn, these transactions are also the most significant by deal value, accounting for 42% of the dollars spent on offshore private equity investments.

Institutional buyouts, where we are considering the more typical private equity backing of the takeover of target businesses, have accounted for 13 of the 41 deals so far, worth a cumulative USD6.8bn. In these deals the private equity firm has taken a 50% stake or more in the target company, or is the parent of the acquirer, and the acquisition has ordinarily taken place using a new company or an acquisition vehicle, with the management team purchasing a small stake.

When we look at the 10 largest investments that have taken place in our region in 2015 to date, we see five of them are minority stake deals, four of them are institutional buyouts, and a fifth - the largest deal of the year so far, involving Hutchison 3G UK - is a capital increase, whereby companies sell more shares to their existing shareholders as part of a fundraising. As such, the biggest deals are representative of the trends we are seeing across the deal-value chain as a whole.

INVESTMENT ACTIVITY

“ In all, 22 of the 41 offshore private equity investments that have taken place in 2015 have been minority stake deals, over half of deal volume.”

INVESTMENT TRENDS, DEAL TYPE 2015 TO DATE

Minority stake 22 dealsUSD8,366m

Institutional buy-out 5 dealsUSD2,037m

Capital increase2 dealsUSD4,313m

Acquisition2 dealsUSD121m

Joint-venture1 dealUSD510m

Management buy-out1 dealUSD unknown

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Sector analysisThree sectors currently dominate the offshore investment activity of private equity firms, with finance, professional activities and information services all proving highly popular with buyout funds when they are shopping offshore. These three sectors account for almost two thirds of the deal volume in 2015 so far, and over 90% of the value, with the three together representing 26 of the 41 offshore investment transactions that have occurred this year, and being worth USD18.5bn.

The largest of these three so-called ‘offshore triangle’ sectors is, so far this year, undoubtedly information and communication, which alone accounted for 12 transactions worth USD12bn. In part this number is distorted by the extremely large Hutchison 3G UK deal – which at USD4.3bn is the largest deal of the year to date – but the fact that the average deal size in the sector is USD1bn is significant in itself. We see several online retailers and application developers, such as mobile taxi booking business Ziaoju Kuaizhi, featuring in the top 10 deals of this year so far.

The second most popular sector by deal volume is finance and insurance, which has to date seen nine PE investment deals worth USD3.1bn. Finance and insurance as a sector always dominates offshore mergers and acquisitions in our broader Offshore-i report, and so it is of little surprise that the sector is increasingly attracting the attention of private equity buyers. In recent years, many buyout firms have turned their thoughts to insurance in particular, spending billions acquiring insurance assets in deals motivated by the attractiveness of steady, predictable income streams that can significantly increase a firm’s assets under management. The insurance industry as a whole is going through a period of consolidation and witnessing major investment from new sources of capital.

The third sector, professional services, covers a wide range of skills and features companies that specialise in niche advertising markets and scientific research and development.

Beyond these three dominant sectors, the previously popular industries of manufacturing and wholesale and retail, which have seen several years of private equity activity, have fallen away in terms of investment deal volumes in 2015.

It has been widely predicted that the healthcare industry is due for expansion, what with the increased demands of an aging population in many countries and, in the United States, the changes brought in with the Affordable Care Act. Around the world, governments have been looking for innovative ways of reducing their own spending on the sector and encouraging private capital, and as such it is notable that among the top PE investments this year a pharmaceutical manufacturer and a fitness club operator feature.

“ Three sectors account for almost two thirds of the deal volume in 2015 so far, and over 90% of the value.”

THE OFFSHORE TRIANGLE: TOP INVESTMENT SECTORS 2015 YTD

INVESTMENT ACTIVITY cont’d.

Professionalactivities

5 dealsUSD3.4bn

Information &Communication

12 dealsUSD12bn

Finance& Insurance

9 dealsUSD3.1bn

Activites of head officesAdvertising & market researchLegal & accounting activitiesScientific R&D

Information servicesPublishing

Telecommunications

Financial services activitiesInsurance & pension fundingSupporting activities

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Geographic trends Cayman Islands-incorporated companies have been the principal target of private equity investment offshore so far in 2015, with 14 deals worth an average of more than USD1bn each. In all, Cayman transactions accounted for a third of deal volume and a cumulative value of USD15bn, or nearly 75% of total deal value spent offshore by private equity firms in the first nine months of the year.

In value terms, Bermuda was the next busiest offshore PE jurisdiction, with six deals worth a total of USD3.3bn, or 16% of all deal value. But Mauritius stands out in volume terms, with 10 deals so far in 2015, representing nearly one in four offshore private equity transactions. These deals are small in value, worth a combined sum of just USD273m, but they highlight the growing interest of private equity firms in Africa, with Mauritius and the Seychelles the preferred offshore structuring jurisdictions for deals on that continent. When we track back to 2011, we can note the gradual increase in activity in Mauritius and the Seychelles, which together saw just three deals in 2011, and one in 2013, before hitting double figures for the first time this year, with three months still remaining.

When we look at the home country of the acquirers of offshore assets, we find that it is private equity firms incorporated in either the Cayman Islands or the United States that have been the most prolific, with both countries the source of nine deals for offshore targets in 2015 so far. Hong Kong and China were both home to the private equity acquirers on six deals each, with the United Kingdom and the British Virgin Islands the acquirer nations on five deals each.

INVESTMENT ACTIVITY cont’d.

“ Cayman transactions accounted for a third of deal volume and, with a cumulative value of USD15bn, nearly 75% of total deal value spent offshore by private equity firms.”

NUMBER OF PE INVESTMENTS BY TARGET COUNTRY, 2011-2015 YTD

0

5

10

15

20

2011 2012 2013 2014 2015 to date

Val

ue (

USD

bn)

58 55

54 51

41

Mauritius & Seychelles Bermuda

Crown Dependencies Hong Kong

BVI Cayman Islands

Total Value

Jurisdiction Key

Top private equity providersThe most active PE investor in the offshore market so far this year has been Temasek Holdings, the sovereign wealth fund that is owned by the Government of Singapore. With a stake in three deals worth a combined USD7.2bn, Temasek featured among the investor group on the institutional buyout of Wuxi PharmaTech, provided funding to Xiaoju Kuaizhi, the mobile taxi-booking app, and was part of a group that paid USD850m for a minority stake in Dianping Holdings, an online shopping app which, like the other two businesses, is headquartered out of the Cayman Islands.

When we take a longer view on the most active PE advisers offshore, reviewing data back to 2011, Temasek remains the biggest offshore investor by cumulative deal value, recording seven deals worth a total of USD16.3bn. But the firm is just beaten in volume terms by Warburg Pincus, an American private equity firm that has been investing globally for several decades, and has announced nine offshore deals in the period worth a combined USD4bn.

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World regionsPrivate equity investment activity in the offshore market continues to compare favourably with that of other world regions, ranking the region fourth globally in terms of deal value. With investment worth USD20bn offshore in Q3, the region ranks behind only North America, Western Europe and the Far East and Central Asia. Indeed, dollars spent on offshore private equity transactions is worth more than that of Oceania, Africa, the Middle East and Eastern Europe combined in 2015 so far.

This high regional deal value is particularly notable given the relatively small number of deals that take place offshore – 41 transactions so far this year, as against 959 in the Far East and Central Asia, where cumulative deal value was not three times what was achieved offshore. As such, the offshore region leads the globe when it comes to the average deal size for private equity investments so far this year. The average amount spent on a private equity deal offshore in 2015 was USD490m offshore, as against USD114m in North America, and USD65m in Western Europe.

Globally, North America accounts for 51% of private equity investment deal value, Western Europe for 25%, and offshore for 5%. In volume terms, over 91% of transactions take place in the three regions of North America, Western Europe and

the Far East and Central Asia, with no other region accounting for more than 3% of activity. Offshore accounts for just 1% of global private equity deal volume.

Finally, when we compare activity levels in the first nine months of 2015 to the full-year 2014, we have not yet seen deal volume in any region overtake where it finished last year, but the United States and Eastern Europe have already topped last year’s total deal value, with three months remaining. The United States is currently 6% up on the full-year 2014 total value of private equity investments, meaning the year 2015 is looking set to be a bumper one for deal spending in that market. Other world regions may yet similarly overtake last year’s totals, with offshore currently just 6% behind where it finished last year, with enough time to make that up and likely move ahead.

INVESTMENT ACTIVITY cont’d.

“ Offshore private equity deal spending is worth more than the activity that took place in Oceania, Africa, the Middle East and Eastern Europe combined in 2015

WORLD REGIONS BY VOLUME & VALUE, Q3 2015WesternEurope

103,528

1,60565

EasternEurope

2,48620

South & CentralAmerica

3,586

8244

Africa

988

6016

Oceania

11,946

43278

Far East &Central Asia

49,358

95951

MiddleEast

2,086

6731

NorthAmerica

213,368

1,868114

125

KEY

20,097

41490

Offshore

Region

Average Deal Size

Deal value (mil USD)Number of deals

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Deal typesOf the private equity exits that have so far taken place in 2015 involving offshore businesses, the majority have occurred by way of a sale. Some 21 of the 55 exits that have been announced are sales, representing 38% of the total, and deals of this type have shown a gradual but steady uptick over the last five years. Back in 2011, just 14 of the 49 offshore exits that occurred were achieved via a sale, with minority stakes featuring more prominently.

In contrast to this small rise, the number of IPOs being announced or completed by private equity owners of offshore businesses has increased considerably in the past few years. In 2015, 15 IPOs have been either announced or completed involving PE-backed companies, which represents 27% of the total volume. If we turn the clock back to the low point of 2012, when equity markets were choppier, we see just three IPOs were on the blocks for private equity businesses, or just 5% of that year’s exit deal volume.

The increase in IPOs seen in 2015, while the number of exits via a sale has remained relatively consistent, has taken place at the expense of minority stake transactions by private equity sellers. In 2012, minority stake deals hit a peak, when there were 34 such exits, representing nearly 60% of all the exits that took place that year. Since then, the number has gradually declined, and there were 16 minority stake exits in 2015, as firms have successfully shifted their focus towards listing stakes on public stock exchanges rather than relying on a single interested party to pick up shares.

Of the IPOs that have occurred involving PE assets in 2015, there has been a clear shift towards the Hong Kong Stock Exchange as the capital market of choice, which was the destination for 13 of the 15 IPOs listing. Two further businesses chose to list on the London Stock Exchange. This split is far more stark than in 2014, when there were 20 IPOs announced or completed with a much more diverse spread.

Of the top 10 exits that have taken place so far in 2015, the three largest have been a sale of 100% of the business, with the most significant being the public takeover of Freescale Semiconductor in a deal worth USD16.7bn.

Exits by way of institutional buyouts by other private equity firms, or secondary buyouts as they are more ordinarily known, remain relatively rare in offshore markets, despite being a common exit strategy for private equity firms globally. The largest secondary buyout of 2015 saw ActiveTopco, a health club operator incorporated in the British Virgin Islands, being sold by CVC Capital Partners and Virgin Group for USD1bn.

EXIT ACTIVITY

“ In 2015, 15 IPOs have been either announced or completed involving private equity-backed companies, which represents 27% of the total volume.”

PE EXITS BY TYPE 2011 - 2015 YTD

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015 to date

Institutional buy-out

Acquisition

IPO & Planned IPO

Minority stake

Secondary buyout

Sale

IPO & planned IPO

Minority stake

IPO EXITS BY EXCHANGE, 2014 AND 2015 YTD

2

6

6

2

4

2

13

2015

2014

4

6

6

2 2

2

13

London Stock Exchange

NYSE

NASDAQ

Others

Hong Kong StockExchange

2015

2014

Key

London Stock Exchange Hong Kong Stock Exchange NYSE NASDAQ Others

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Sector analysisFinancial services businesses have proved popular sales for private equity firms exiting offshore assets in 2015, with seven businesses offering investment and acquisition services changing hands during the year so far. Meanwhile the financial services support sector, which includes companies such as insurance brokerage Ironshore, also proved lucrative in terms of deal value, with four exits in that market by PE firms worth a cumulative USD2.4bn.

The sector that stands out in terms of both deal value and volume in 2015 so far, however, is paints and chemicals manufacturers, where there were five exits in total, worth a combined USD2.9bn. This surprise performance includes two tranches of share offerings by Axalta Coating Systems, the Bermuda-incorporated manufacturer of paints, varnishes and other coatings. Both deals feature in the listing of top 10 exits of 2015 to date.

Another sector that has done well for private equity sellers this year is tutoring and online education services, where there have been four deals done in 2015. Medical research and development, and the manufacture of pharmaceuticals, both saw three deals each and cumulative deal values of around USD1bn.

“ Financial services businesses have proved popular sales for private equity firms, with seven businesses offering investment and acquisition services changing hands during the year so far.”

TOP EXIT SECTORS 2015 YTD

EXIT ACTIVITY cont’d.

0 1 2 3

Investment & acquisition services

Paints and chemical manufacturers

Financial services support

Tutoring & Online education services

Medical R&D

Manufacture of pharmaceuticals

75

43

Total Exit Value (USDbn)

No.

of Ex

its in

eac

h se

ctor

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EXIT ACTIVITY cont’d.

“ …there have been several cases where the investment was held for less than three years, so-called ‘quick flips’. ”

Geographic trendsThe top 10 exits involving private equity-backed offshore companies so far this year reveal that the geographical split across offshore jurisdictions is incredibly even. The largest – the public takeover of Freescale Semiconductor – involves a Bermuda-incorporated business, and there are two further Bermuda deals in the top 10, both involving paints manufacturer Axalta Coating Systems.

The Cayman Islands is the home jurisdiction for four of the 10 largest deals, the most significant being the exit from Ironshore Inc, the insurance business, where Calera Capital and GTCR Golder Rauner sold a USD2.1bn stake to Fosun International. The four deals were worth a cumulative USD5.8bn.

The British Virgin Islands (BVI) and Jersey are also home to two companies subject to large exits so far this year, with BVI-incorporated Iron Mining International at the heart of the second-largest exit of 2015 so far, worth USD2.8bn, and Jersey’s Guardian Holdings, a life insurance business, ranked third in the exits table by value, selling for USD2.5bn in a 100% exit for its owners Cinven.

Looking beyond the top 10, overall exit activity was dominated by Cayman targets, who made over half of all the 55 exits.

Acquirers of the companies sold in offshore exits were evenly split between listed and unlisted companies, with China, the United States and the British Virgin Islands among the leading purchasing nations.

Holding periodWhere it has been possible to trace the original investment preceding the full and partial exits in 2015, there have been several cases where the investment was held for less than three years, so-called ‘quick flips’. Overall holding periods ranged from one year up to almost nine years, with an average length of a little over four years.

Key

Cayman Islands

Bermuda

Crown Dependencies

BVI

Hong Kong

Mauritius

29

24

6

6

6

2015 YTD PRIVATE EQUITY EXITS BY JURISDICTION

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ABOUT APPLEBY’S PRIVATE EQUITY GROUP

Appleby’s global private equity team has been at the forefront of private equity deals almost since the invention of the leveraged buyout. With leading practices in both private equity funds and private equity transactions, we provide clients with an integrated service in all aspects of the private equity market. Our unparalleled geographic footprint, coupled with our commitment to both mid-market and multibillion-dollar deals, provides us with a global perspective on structuring and executing private equity mandates.

Clients retain us for our deep understanding of their business needs, issues and goals. They rely on us to help them make the right deals on the right terms, thoughtfully assess risk and make appropriate trade-offs, and respond quickly to meet business demands. We have expertise on the ground in Bermuda, BVI, Cayman, Guernsey, Hong Kong, Isle of Man, Jersey, Mauritius and the Seychelles, and our services cover the whole life cycle of every fund and every investment, from fund formation and capitalisation of investment vehicles, through to public and private mergers and acquisitions, leveraged buyouts, group restructurings, refinancings, secured lending and transactional due diligence.

ABOUT APPLEBY

Appleby is one of the world’s largest providers of offshore legal, fiduciary and administration services. We have around 800 people, including 59 partners, operating from 10 offices around the globe.

We advise global public and private companies, financial institutions, and high net worth individuals, working with them and their advisers to achieve practical solutions, whether in a singlelocation, or across multiple jurisdictions.

For further information contact:

Simon RaftopoulosPartner, Global Head, Private Equitysraftopoulos@applebyglobal.com

© Appleby Global Group Services Ltd 2015. Published in the Isle of Man. All Rights Reserved.

RESEARCH METHODOLOGYThis report details private equity buyout and exit activity in offshore jurisdictions in Q1-Q3 2015 using data from the Zephyr database, published by BvD. The offshore region covers target companies in Bermuda, British Virgin Islands, Cayman Islands, Hong Kong, Guernsey, Jersey, Isle of Man, Mauritius and Seychelles.

The date range is 1 January 2015-30 September 2015 inclusive. Deal status is as announced within the time period covered. Where necessary, deal values have been converted to USD at a rate set by Zephyr. Not all deals have a publically known value. Not all deal details are reported immediately, and the figures are also subject to change as new information becomes available.