Deals are on the wane – Finance – Kommersant
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Russian business continues to rebuild after the mass exit of foreigners. Demand for assets is strong, despite the decline in the total cost of M&A transactions in the third quarter by almost a quarter. Both good and distressed assets are now being sold at a discount, but future buyers now have to take into account the risks of falling under sanctions. Given the uncertain economic and political outlook, this reduces investors’ appetite for deals.
As follows from the AK&M report (Kommersant has it), in July-September the M&A market with a threshold of $1 million decreased in terms of the amount of transactions year-on-year by 24.6%, to $8.44 billion. The number of transactions also fell by 8.6 %, to 149. Nearly 30% of them (for a total of $2.5 billion) were sold by foreign investors. Companies from the USA, the Czech Republic and Finland left the Russian Federation most actively, the report says. However, the largest sale in the third quarter was the sale of the My.Games gaming service by the Russian group VK for $642 million (see “Kommersant” dated September 28). Since the beginning of the year, 366 transactions worth $26.5 billion have taken place.
According to AK&M estimates, the average value of assets sold grew by 37.7% year-on-year, to $56.6 million. However, there was not a single transaction worth more than $1 billion.
Basically, all major transactions are now one way or another provoked by sanctions pressure, assets “are sold at a discount or on contractual terms,” explains Lyudmila Eremina, deputy general director of AK&M. In addition, they note in AK&M, Russian investors have to leave the assets for the same reasons. Thus, Sberbank sold subsidiaries in Kazakhstan and Switzerland. Often forced and in some cases purely nominally withdraw from the capital of their companies and many businessmen who fell under the sanctions.
Foreign business leaves Russia in different ways, says Alexander Yermolenko, senior partner at FBK Legal: some want to return and have an option, some sell for next to nothing and quickly leave the market, some “gamble”: they leave the Russian market, selling the asset for “normal money”. On the other hand, the lawyer notes, “some part of Russians is following the same path, selling assets in the country and leaving for other jurisdictions.” In addition, Mr. Yermolenko adds, there was a wave of intra-group transactions on the market, when companies returned assets to Russian jurisdiction.
As a result, “deal activity is still high,” said Denis Surovtsev, director of investment and capital markets at Kept. However, it could slow down the expansion of the criteria for transactions subject to the need for approval by the government subcommittee on foreign investment. In addition, until the end of the year, special permission from the President of the Russian Federation require deals with 45 foreign banks and 191 fuel and energy companies. As a result, the closing of many deals may be delayed until next year, Mr. Surovtsev believes.
Kept observes that most trades go through, but for many of them the commission sets a discounted price.
Denis Surovtsev explains that the key factor that is now lowering the price of transactions relative to the summer level is more active price regulation by the commission: observed.”
Investor interest is also reduced by sanctions risks for new owners, they must now be taken into account, including by potential buyers of foreign assets of Russian investors, Alexander Ermolenko adds. Mobilization, according to Mr. Surovtsev, also “slightly reduced investors’ appetite for risk and in some cases led to a decrease in transaction prices, but at the moment this effect is more of a point effect, we can already talk about the gradual calming of investors after the first shock.”
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