A new report shows that Bermuda is second to the Cayman Islands when it comes to the number of offshore mergers and acquisitions (M&A) made in the second quarter of this year, but not when it comes to the financial sector.Offshore-i, Appleby’s quarterly report, which provides data and insight on M&A activity in major offshore financial centres, finds that the offshore M&A market increased in value at twice the worldwide average in the second quarter of 2012. Of the nine offshore locations included in the report, Cayman took the top spot as the most popular destination for investors doing deals involving offshore targets. The Caribbean tax haven completed 104 deals worth a combined value of $19 billion.Bermuda had the third-highest number of deals and the second highest aggregate deal value with 69 deals worth $6.6 billion. Bermuda deals represented 18 percent of total deal value of all offshore jurisdictions ($37.4 billion total) and 15 percent of the number of deals reported (447 in total).“This quarter we can observe a certain robustness returning at the larger deal end of the transactional landscape,” said Peter Bubenzer, Appleby’s Bermuda-based group chairman. “Financial sponsors find themselves sitting on cash that needs to be invested, and corporate balance sheets look strong and ripe for spending on the right deals in the right places.”The offshore market, which includes Bermuda, the British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Isle of Man, Jersey, Mauritius and the Seychelles, performed better than many other regions of the world. At a time when North America, the Middle East, the Far East and Central Asia all saw deal values falling, the offshore market saw a 12 percent increase in transaction values from Q1 to Q2 of this year.The Cayman Islands experienced significant growth in the second quarter with deal value and volume up 323 percent and 17 percent respectively from the preceding three months. Much of this value was largely due to the Alibaba deals — a global e-commerce group based in China.The British Virgin Islands experienced the biggest increase in volume, up 25 percent from 77 in Q1 deals to 96 deals in Q2.“When considering the offshore region as a target for investors, we see the Cayman Islands and the British Virgin Islands continuing to attract the most investment,” the report stated.While Cayman and BVI lead in the number of M&A deals overall, Bermuda continues to dominate deals in the financial sector. Of the $5 billion in deals reported by the nine offshore jurisdictions in Q2, 28 percent (or $1.4 billion) were Bermuda-targeted dealsThe report says of the 16 deals with a value greater than $100 million, Bermuda led the way with six of those. In all, there were 23 Bermuda-based deals in the financial sector for Q2. Three were reinsurance transactions, the others were spread across other types of financial companies including non-life insurance, insurance and brokerage, and fund management companies.“The reasoning for this appears to be uncertainty in the Eurozone and those insurers and reinsurers in these two markets (in particular those global leading reinsurers with European headquarters) looking at transportability of the sector’s assets in a bid to minimise exposure and risk,” the report stated.The insurance-linked securities sector has benefited from the general slowdown in the global capital markets, the report found. Such securities, which are not correlated to the general financial markets, continue to provide investors with a reasonable rate of return on risk.“Alternative risk transfer products have proved popular across our offshore centres, Bermuda, Guernsey and Cayman Islands,” the report said. “The Cayman Islands, a popular jurisdiction for captive insurance and ILS products, is also looking at ways within its regulatory environment that it can attract the reinsurance industry.”Across other industry sectors, three of the top 20 deals reported in Q2 were conducted in Bermuda, including a $1.35 billion acquisition by Kunlun Energy Co, Ltd, a $1.35 billion minority stake transaction by Kunlun, a gas and oil trading transmission company, and an $848 million share buy-back by Marvell Technology Group, Ltd, a semiconductor manufacturer whose chips power the iPhone, Kindle, BlackBerry and Xbox. Three of the top 20 rumoured deals were located in Bermuda as well, according to the Appleby report.“Bermuda continues to lead the offshore market in financial services transactions and is an important destination for other offshore deals as well,” said Timothy Faries, Appleby’s Bermuda group head of corporate and commercial.The value of deals involving offshore targets increased 12 percent in Q2, up $3.8 billion from the previous quarter — this compares to a six percent increase in the worldwide value, and vastly outpaces many of the major financial markets, including the US and Asia.“Looking forward, whilst it is unlikely that the floodgates will suddenly open for increased deal flow soon, a certain level of robustness is beginning to emerge in the offshore M&A figures,” Mr Bubenzer added.Continuing global uncertainty is likely to be the most significant factor driving transactions on and offshore. The report said the imminence of the US elections and the state of the UK economy are likely to have a depressive effect in traditional markets over the second half of the year and that China will experience a once-in-a-decade leadership change in the autumn which is likely to cause added caution. Given the confluence of these events, the report finds there is unlikely to be an uptick in the willingness of businesses to enter into transactions in the coming six months.