The AK&M Information Agency calculated the index of the domestic mergers and acquisitions market (the AK&M M&A Index) for August and September 2013.
In August 2013, the Index stood at 202.15 points growing by 81.51 points (+67.5%) against July 2013, by 76.26 points (+60.6%) against August 2012.
The index growth in August was basically driven by a significantly higher amount of transactions. According to AK&M Information Agency's statistical data, the total amount of transactions in Russia's mergers and acquisitions market in August reached $7.904 billion (71.5% more than in August 2012), the number of transactions grew by 17.5% to 47.
September 2013 also made a hefty contribution to the market. The total amount of M&A events in the Russian market, according to AK&M Information Agency, reached $4.844 billion, 38.7% below the previous month's result but 4 times more than in September 2012. It should however be noted that a low base effect was at play, September being one of the worst months in terms of the M&A activity for the whole post-crisis period (the total amount of transactions reaching a mere $1.203 billion).
The number of M&A transactions increased more than twice in September 2013 (56 against 26 for the same period in 2012). Also, we saw a much wider range of economy industries involved in M&A processes (17 sectors in September 2013 against only 9 sectors the year before).
In September 2013, the AK&M M&A Index decreased to 166.06 points, 36.09 points (-17.8%) below the previous month's result but more than twice the level in September 2012 (+88.21 points year-on-year).
Average value of the AK&M M&A Index for Q3 2013 was 162.95 points, 52.47 points (48%) above the average value in the third quarter of 2012 (110.48).
Average Index value for nine months 2013 also increased against the same period in 2012: 163.72 points from 139.08 points in January-September 2012 (+17.2%).
The Index growth was driven by improvements in Russia's production performance as a whole. The industrial production index which decreased by 0.7% early in the third quarter (according to the Federal State Statistics Service), looked up in August and September even if timidly (+0.1% and +0.3%, respectively).
However, the strong September result was not enough for a proper comeback after the previous periods' economic slowdown. Analysts expect the IPI in the manufacturing sectors to increase by a mere 0.5-0.6% in 2013, while the GDP may grow no more than 1.5% (1.3% for nine months of 2013, according to the Ministry of Economic Development).
The lower fixed capital investments (-1.4% for the 9-month period in 2013 according to the Federal State Statistics Service) and poorer balanced financial result of enterprises (-20% for January-July 2013) have the most negative impact on M&A prospects. Another thing discouraging the M&A market is the change in large players' investment plans in response to the freezing of natural monopolies' tariffs expected in 2014. While growing financial capacities may spur M&A processes in the segments benefiting from this freezing, primarily, in power-intensive manufacturing sectors, rapid investment climate changes are still playing against the M&A market.
As AK&M Information Agency's experts already noted, lower financial results force enterprises to axe or curtail their investment programs and to put deals on hold. The M&A activity is only high in the lowest-price segment (deals worth $1-10 million) accounting for 50% of all the transactions in September 2013. Average deal value (excluding the largest deals worth $1 billion and more) in September 2013 decreased to $44.8 million, even below what it had been in the disastrous September of 2012 ($46.3 million).
Average deal value in Russia's mergers and acquisitions market for 9 months 2013 matched the result achieved for the same period in 2012 ($57.1 million) indicating that Russian companies are not growing in value any more.
According to AK&M analysts, the adverse economic environment makes the M&A market unable to grasp at its current opportunities. Nevertheless, the deferred effect of the prolific September may still produce a favorable impact on the market in early fourth quarter. However, it should be noted that the limelight of investors' interest is drifting from the real economy to infrastructure: power, transport, finance, IT. An exception to this rule is the fuel and energy sector (oil and gas production) and some manufacturing sectors, as exemplified by the chemical industry.
AK&M Information Agency calculates the M&A Index monthly. This Index represents the overall activity in Russia's market of mergers and acquisitions adjusted for the impact of main macroeconomic parameters on M&A processes. Our multiple-factor Index is unparalleled in Russia's market of mergers and acquisitions.
The Index delivery is motivated by the flexibility of Russia's mergers and acquisitions market reacting to signals from the domestic and global economic environment with just a one or two month time lag. The M&A market performance and its changes are highly dependent on the current situation – although this dependence is not direct but results from the cross impact of different forces. AK&M Information Agency's new Index is meant to summarize the M&A market including a variety of factors at play, net of irregular distortions.
The calculation procedure is based on the monthly statistics of Russia's M&A market collected by AK&M since 2010. The Index factors in the number and amount of transactions in Russia's M&A market for one-month periods, as well as the average transaction value. The impact of sporadic major transactions inspired rather by companies' strategies than the general market environment is offset by a correction factor. Also, the Index factors in the number of economy sectors registering M&A transactions over the month.
The Index calculation procedure assumes comparison of the said parameters with the benchmarks (the January 2010 result). The complete estimation procedure is available in the INDICES section on AK&M Information Agency's website.