Russian assets lure foreigners
The growing economy makes Russia very attractive for foreign investors to buy into raising stakes in M&A game outside strictly state-controlled strategic industries.
Real estate, retail and investment banking are some of the fastest-growing sectors of the Russian economy and foreign companies want in on the action.
Those advising on foreign mergers and acquisitions, say we're only at the beginning of the growth cycle.
“I think there's a myth outside Russia that its very hard to do a deal in Russia, but outside the strategic industries that's definitely not the case,” Alan Broach, a partner in Deloitte in Moscow believes.
“I think the biggest surge is coming in real estate. We get enquiries literally every day of the week from foreign companies wanting to invest in Russian real estate,” he adds
We see the strong development of domestic retail chains, strong domestic retail business. We have clients, Russian clients, looking for acquisition opportunities in Europe, from the retail sector
And even when foreign investors buy into a Russian company and export much of the profit they make, the economy still gains.
“The size of borrowing is linked to the value of the company. So, as a result, the higher the interest of foreign companies in Russian companies, the higher Russia's ability becomes to borrow internationally and to fund its growth,” Natalya Orlova, Economist at Alfa-Bank in Moscow states.
Although the biggest five last year were in energy and metals, the sheer volume of smaller deals in other sectors also contributed to a doubling in the value of the Russian M&A market last year.
It grew from around $US50 billion in 2005 to more than $US 100 billion in 2006 with the vast majority of cross-border M&A coming from foreigners buying into Russia.
The Russians are coming
Leading M&A advisor Raiffeisen Investment believes that next year the major growth will be in the number of outbound and domestic transactions.
According to Evgeny Sidorenko of Raiffeisen Investment, “we see the strong development of domestic retail chains, strong domestic retail business. We have clients, Russian clients, looking for acquisition opportunities in Europe, from the retail sector.”
But economists say Russia needs huge foreign investment to fund its growth, and diversify the economy away from its dependence on oil and gas.
So, increased competition between foreign and domestic players outside the strategic industries, looks set to be the name of the M&A game in 2008.