In the first half of 2014, Russia saw an appreciable pickup in the inbound M&A activity. The total amount of foreign investors' transactions involving Russian assets for January-June 2014 was $7.63 billion, 1.4 times above the whole year 2013 level ($5.35 billion). The number of transactions also increased, even if less impressively (by 6.7% to 32 against 30 deals for 6 months 2013), according to the recent issue of AK&M Information Agency's monthly bulletin MERGERS AND ACQUISITIONS MARKET (no. 198).
Acquisitions of Russian assets by foreign companies are primarily spurred by the sliding ruble exchange rate and, accordingly, their lower value in foreign currency terms. It should however be borne in mind that such transactions involve sales by Russian companies of their overseas production assets. Such deals have made a particularly great contribution to the M&A activity in the segments of metallurgy and mining of metal ores. Earlier, Russian companies used to dispose of foreign assets that were mostly loss-making or unable to fit into their owners’ corporate strategies, but this year has added political risks to the list of reasons.
As to purchases of assets in Russia by foreign investors, such transactions most frequently occur in the mechanical engineering and pharmaceutical segments. At the same time, other economy segments in which foreign investors dealt eagerly before are now losing the M&A appeal. In particular, only three out-in transactions were effected in the construction and development sector for 6 months of 2014. Also, foreign banks continue pulling out of the Russian market.
The breakaway of Ukraine from the influence of the Russian M&A market is a landmark event bringing dramatic changes to the asset location breakdown in terms of the cross-border M&A activity. In recent years, Ukraine has been Russia’s key partner in cross-border transactions taking the lead in the number of cross-border M&A transactions, even though the total value of assets was not high. In 2013, Ukraine ranked first in the number of Russian investors' transactions abroad outstripping Germany, the U.S., the UK, and Italy, and second in the number of foreign investors' deals with Russian assets trailing only the U.S. and, again, outstripping the UK, Germany, the Netherlands and other countries.
However, this year's rift between the countries has actually frozen any cross-border transactions between the Russian and Ukrainian players. Transactions involving Russian and U.S. companies are also full of aloofness. Russian companies’ outbound activity has now shifted to Germany, the Czech Republic, and Kazakhstan. At the same time, investors from Germany, France and Sweden are the most frequent investors in Russian businesses.
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AK&M "M&A Market"
"AK&M", 15.08.2014 14:19