Mergermarket and Goltsblat BLP released the report on Russian M&A activity “A New Dawn in Dealmaking".


Today Mergermarket together with Goltsblat BLP announced the release of the exclusive report “A New Dawn in Dealmaking - a report on Russian M&A activity”.  A survey of 100 Russian M&A practitioners  reveals that 79% of all Russian dealmakers expect to see M&A activity across Russia increase over the next 12 months, while a further 19% believe that levels will remain the same. The respondents were from the financial, legal, private equity sphere and C-suite executives from the corporations with a turnover of up to US$1bn.

62% of respondents believe that Russian M&A activity will be driven by one of two factors – the wider global economic recovery and the large number of distressed business sales. Cash-rich European and North American companies are diversifying away from troubled home markets and a relaxation of onerous regulations governing inbound acquisitions in the country is helping to boost levels of Russian M&A activity.

Andrey Goltsblat, Managing Partner, at Goltsblat BLP comments: “We have been seeing a pick-up in M&A activity - respondents to the survey give M&A activity in Russia over the next year a big vote of confidence in line with global trends, experts continue to see the attraction of Russia as an investment destination.” He also adds: “Private equity is very attractive to Russian businesses, because it is a less expensive way of funding than taking a debt. We also see private equity closing more deals, though still comparably less than strategic buyers.”

“Whilst dealmakers will continue to face challenges, such as the complex regulatory environment and high interest rates, these results are very encouraging and implies that Russia is still very much a BRIC force to be reckoned with,” commented Catherine Ford, Editor of mergermarket’s research division Remark. “That said, the attractiveness of Russia is further boosted by the comparatively low entry prices, growth potential and natural resources.”

Furthermore, as Ian Ivory, Partner in the Corporate practice partner in Goltsblat BLP’s Moscow office, notes: “The biggest trend in the Russian financing space is the shift from outright lending of funds to restructuring existing debt. Nowadays, a large proportion of the funding available is in fact for the refinancing of existing debt.” “Furthermore, the flight of Western lenders in the aftermath of the financial meltdown has allowed Russian lenders, state-owned, private and local, to fill the void and gain market share. Institutions that particularly stand out in terms of lending are Sberbank, VTB and VEB,” - Anton Rogoza, Partner in the Corporate/ M&A practice adds.

However, foreign buyers may find themselves unaccustomed to local peculiarities to deal making in Russia as Anton Sitnikov, Partner and Head of the Corporate/ M&A practice in Goltsblat BLP Moscow office, explains: “Complexity is an underlying theme to deal making in Russia. The inflexible, as many are to believe, nature of Russian corporate and contact laws and lack of effective acquisition tailored payment mechanisms coupled with courts reluctance to rule on anything that is worded differently to the exact wording in the code and law has led to numerous instances of the use of foreign laws. However, looking ahead, foreign buyers should expect increased clarity in relation to strategic enterprise legislation, development of precedents with shareholder agreements and complex share purchase arrangements under Russian laws and as a result more application of Russian laws than in the previous decade.”

“An early settling of the question of who will take on the risk for corporate conflict and an agreement on how to resolve conflicts increases the chances of success,“ states Rustam Kurmaev, Partner at Goltsblat BLP, on a finishing note.

The full report, available for download here.

Further highlights from the report include:

  • The expected wave in dealflow is expected to stem from the TMT, Energy, Mining & Utilities and Financial Services sector (areas that have traditionally seen the bulk of M&A activity and continue to remain of interest to investors.), with 72% of respondents believing that M&A activity over the next two years will take place in either of these sectors;
  • A significant portion of the corporate respondents (47%) are already actively seeking funding, with more than half stating that the cash is intended to fund a M&A activities. One of the biggest challenges Russian business face when trying to secure funding is high interest rates, according to the majority of respondents, which in turn have respondents predict that Russian corporates will turn to private equity or external investors to fund their growth plans;
  • The success of an M&A transaction comes down to a strong management / advisory team and synergy-creation, says a combined 61% of respondents

Please find below an illustration of the top M&A deals in Russia for 2010 YTD with value up to US$1bn.

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