Russian mergers and acquisitions market rallies

With Russia’s M&A market almost doubling last year, and improving in the first quarter of 2011, Business RT spoke with Shawn McCarthy financial services partner at KPMG Russia.

RT:  The share of M&A deals with foreign companies jumped to 47 per cent in the first quarter compared to just 14 percent last year. What is driving the growth?

SM:  “Well I think to a great extent it has to do with timing.Generally a lot of the deals we see coming forth have had long gestation periods.We are talking about natural resources deals, larger consumer transactions and the deals in telecoms – with VimpelCom going outside.I think what we would expect is that by the end of the year those percentages would level out.So you would be seeing roughly 15-20% overall of inbound investments.”

RT:  Which sectors of the Russian economy are seeing the most significant growth in M&A activity this year and what are the reasons behind it?

SM:  “Well I think up to this point we have seen lots of activity in the natural resource sector, essentially companies that are looking for raw materials, or looking to develop some of the raw materials inside of Russia, and also in consumer markets, where we see growth significantly ahead of GDP – if GDP is 4%, Russian retail, for instance, is growing at 10% year on year in terms of real growth.”

RT:  Are there any significant deals in the pipeline for this year so far?

SM:  “Well I think I wouldn’t want to name company names, but I think it is fair to expect a number of transactions in the retail sector, particularly in non-food retail, as well opportunities in agriculture, whereas natural resources will continue to be a hot sector, including precious metals.I think the interest in gold right now is substantial.”

RT  :When do you expect the Russian M&A market to achieve its pre-crisis levels?

SM:  “It’s difficult to predict exactly when.I think bye and large we are targeting 2012 – perhaps optimistically.I think we are still seeing the market is still somewhat fragile.But we are encouraged because of the breadth of investor activity.Certainly within the mid market – deals between $30 million and $500 million – we see a lot of interest.Not only from Europe, places like the U.S., but also in territories that previously haven’t been as active – Japan, and certainly the Middle East.”

RT:  Foreign companies are mostly dealing with big Russian firms- why is that?

SM:  “Well certainly the growth prospects for Russia are significant, and that underpins the interest in the market.The reason why there is a preference for bigger companies is that generally with a bigger company you have bigger operational management capabilities, certainly you get scale and access to the market, but also you get enhanced transparency and visibility, confidence in future earnings.”