Russian market of Mergers and Acquisitions
The growth of the Russian mergers and acquisitions market was once ensured by major transactions in the oil and gas industry. So far, this sector attracts domestic and foreign investors, the situation was not affected even by the slowdown in economic growth in 2019.
At the same time, the Russian market of mergers and acquisitions remains one of the most effective tools for business development. Such transactions help, to expand the business, increase its profitability and competitiveness. Often, deals are concluded by companies that have their own resources to expand production or invest in development.
However, the results of M&A transactions are influenced by factors such as the quality of planning, optimization of financing, analysis of the internal and external environment of the company. Before finalizing the transaction, it is important to identify the weaknesses of the business and assess the prospects for its development. It is equally important to understand the special features of the local market.
According to Russian legislation on legal entities, a merger is a procedure that results in the formation of a new company. It receives all the rights and obligations of the companies involved in the transaction, while they officially cease to exist. If a company or several transfer their rights to another company, from the point of view of the law, this is an accession. Accordingly, for the takeover, it is necessary to acquire more than 30% of the authorized capital or shares.
The key features of the formation of the M&A market
The Russian market of mergers and acquisitions began to develop only after the collapse of the USSR, whereas abroad it has existed since the 1930s. Companies associated with the oil and gas industry were the first to practice M&A transactions. Moreover, initially these were mergers of a vertical type, when participants of the same technological chain were united into a holding.
Until now, the oil and gas industry continues to lead in this area, it is responsible for the majority of mergers and acquisitions in Russia. The background for the merger of oil companies is the lack of a balance of extracted, processed and sold raw materials. In such circumstances, the merger significantly reduces the risks and possible losses.
In recent years, the Russian M&A market has been undergoing an important transformation since companies have to rely on their own resources. Although bank lending is considered the most popular source of financing in this area, it is associated with additional risks. Therefore, Russian enterprises are trying to rely on their own resources or look for other sources of raising funds.
It is noteworthy that a large share of mergers and acquisitions falls on the lower price segment. The number of transactions in the oil and gas complex has remained, although it remains attractive to investors.
After 2014, the Czech Republic is Russia’s main partner in transactions of this level. Although many experts predicted an increase in interest from China and other Asian countries, they still do not play a significant role as investors.
Russian investors often buy businesses abroad that work in the field of services, information technology and mechanical engineering, while foreigners are interested in fuel and energy enterprises in Russia. Because of this, the Russian M&A market is influenced by factors such as world oil prices, foreign policy, and changes in the investment climate.
The second place after the oil and gas industry in the field of M&A is occupied by communications, third place is construction and development. Moreover, in terms of the number of transactions, this industry occupies the first place in the Russian economy. Although currency fluctuations also affect development since they reduce the demand for commercial real estate. Metallurgy and the financial sector occupy an important place in the Russian M&A market. Moreover, the latter sphere is influenced by the position of Russian banks. Thus, leadership in this area belongs to industries that focus on the consumer market. Moreover, a lot of mergers and acquisitions are concluded by companies related to medicine and sports. The growing demand for medical goods and services stimulates this process.