Russian IT market enters consolidation phase

IT services company, Armada, has floated a 20% stake on the Micex and RTS on Tuesday in the latest Russian stock market debut. It's expecting to use the funds raised to acquire field companies in Russia's heavily fragmented IT services sector.

Unlike the retail chains, oil majors and banks which have hogged the IPO limelight, Armada is a minor player in a fragmented market and it's looking to use the money to become a bigger fish in what it sees as a consolidating pond.

“We are planning to attract up to $US 30 MLN through listing 20% of our shares on the Russian stock exchanges. We want to spend this capital on the development of our company and the acquisitions of other companies working in the IT sector,” explains Dmitry Belyk, Armada Board Chairman.

Armada believes that its move will be the first of many, with the IT sector maturing as more players move into services and away from products. Currently 70% of the players on the market specialise in importing equipment, with the rest developing products of their own and offering services. This is expected to change with government support encouraging service provision.

“There are up to 5,000 IT companies in the Russian market. The market is mature enough for more players to list, and it's moving further in that direction. And I think our move will only push other companies forward. As for our company, we plan to acquire up to 5% of the IT market within five years as it consolidates,” says Aleksey Kuzovkin, Armada Director General.

Analysts agree that the market is ready for consolidation, and say the success of the Armada listing will encourage other players.

“We know that the placement has been almost ten times oversubscribed, which indicates  investors' huge interest in the stock. Now the Russian IT market is entering a consolidation phase. So many companies are looking to raise funds in order to have the money to acquire attractive assets ahead of the competitors. I would expect, possibly seeing Armada's encouraging experience, that more IT companies will come to the capital market to raise funds,” suggests ATON senior analyst, Nadezhda Goloubeva.

With the sector currently growing by about 20% per year, Tuesday's move by Armada is likely to be just a beginning. And it seems that investors have plenty of appetite for Russian IT.