In January-June 2014, the action-packed fuel and energy sector accounted for more than one-third of the total Russian M&A market volume, with 15 transactions amounting to $12.32 billion (38% of the market volume). The largest deal was the acquisition by investment holding LetterOne of oil and gas producer RWE Dea for more than $7 billion, according to the recent issue of AK&M Information Agency's monthly bulletin MERGERS AND ACQUISITIONS MARKET (no. 198).
The U.S. and EU sanctions had a significant influence on the M&A activity in the sector, the market booming in March and April in an attempt to countervail their impact. At the same time, the M&A market in the oilfield services segment saw an appreciable revival in the face of a threatened embargo on exports of technologies and equipment for the production of oil and gas to Russia.
The telecom sector ranked second in terms of the M&A performance in January-June 2014 (8 transactions for a total of $4.06 billion, 12% of the market volume). It should however be noted that the highlight of the 6-month period, Vimpelcom Ltd's agreement (reached in April) to sell its 51% stake in its Algeria-based subsidiary Orascom Telecom Algerie to the National Investment Fund of Algeria (FNI) for more than $2.6 billion, accounted for the lion's share of the total result. The following months saw another major setback in the M&A activity in telecoms, with not a single transaction finalized in June, for example.
The third largest contribution to the M&A market was made by the chemical and petrochemical industry (10 transactions, $2.64 billion, 8.1% of the total market volume). After a long period in the doldrums, the industry staged an impressing comeback in the second quarter establishing itself as an undisputed leader in terms of the market growth rate over the half-year period. The biggest deal for January-June was the acquisition by Rosneft of the SANORS petrochemical holding at a price estimated at $1 billion.
The construction and development sector stood fourth in the ranking of sectors for the half-year period (33 transactions for a total of $2.43 billion, 7.5% of the M&A market volume). The number of transactions for the same period increased 1.9 times, their total amount 1.3-fold year-on-year. Despite the high performance, the M&A activity may decrease soon: the correlated amount of investment in the commercial real estate went down 30-60% in the first half of the year, according to various estimates. The market activity has decreased due to exchange rate fluctuations and the timidity of developers bracing for the aftermath of the sanctions imposed on the Russian economy.
The financial sector rounds out the top 5 contributing 29 transactions for a total of $2.28 billion (7% of the M&A market volume). In the first half of 2014, it was among the market leaders in terms of the M&A activity growth, the other two leaders being the construction & development and IT sectors. The total amount of M&A transactions in the sector for the 6-month period increased 1.6 times, their number by 32%. This hefty growth was driven by the ongoing consolidation process in the banking segment accounting for 86% of the transactions for January-June 2014.
As previously mentioned, the amount of M&A transactions increased most in the chemical industry and the financial sector. The metallurgical sector has also made a much stronger contribution, although the higher amount of transactions in the latter case results from sales by Russian companies of their overseas production assets.
The amount of M&A transactions involving IT assets shows a gradually slower growth in the wake of a weaker expansion of the IT market as a whole. A 33% year-on-year growth is a fairly modest result for this sector where the M&A market volume increased 2.3 times for the same period in 2013, 1.5 times for H1 2012. The tighter government regulation of the IT sector and the risk of new international sanctions are hampering the development of this market in Russia. Nevertheless, the number of transactions is still growing (in the first half of the year, it doubled against the same period in 2013), although the average deal value in the sector dropped by one-third year-on-year.
A steady decline in the M&A activity (both in number and value of transactions) in the sectors driven by consumer demand (retail trade, food processing, services) has to be highlighted among the current adverse trends. Being in the limelight of investors in 2011-2013, they have now lost their M&A appeal, a direct consequence of the companies' shrinking revenues and weaker earning power. The companies' financial performance was obviously impaired by the faster growing food prices, the weaker consumer lending market, and the stagnating real disposable household income. Therefore, the M&A activity in these sectors is most likely to stay in decline at least through the third quarter of 2014.
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AK&M "M&A Market"
"AK&M", 15.08.2014 13:52