Russian market of Mergers and Acquisitions

Nov, 03 2020

The growth of the Russian M&A market has been driven by major deals in the oil and gas industry. So far, this sector has attracted domestic and foreign investors, and the situation has not been affected even by the slowdown in economic growth in 2019.

At the same time, the Russian M&A market remains one of the most effective tools for business development. Such transactions help, first of all, to expand the business, increase its profitability and competitiveness. Often, deals are made by companies that have their own resources to expand production or invest in development.

Legal framework

The Federal law on joint-stock companies recognizes a merger as 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 companies transfer their rights to another company, from the point of view of the law, this is an accession. Accordingly, for a takeover, it is necessary to acquire more than 30% of the authorized capital or shares.

Specifics of M&A market formation

The Russian market for Mergers and Acquisitions started developing only after the collapse of the USSR, while abroad it has existed since the 30s of the last century. Companies associated with the oil and gas industry were the first to practice M&A transactions. Initially, these were mergers of a vertical type, when participants in the same technological chain were United in a holding.

Until now, the oil and gas industry continues to lead in this area, and it accounts for the majority of Russian mergers and acquisitions. The lack of a balance of extracted, processed and sold raw materials is considered a prerequisite for the merger of oil companies. In such circumstances, the merger significantly reduces the risks and possible losses.

Current state of Affairs

In recent years, the domestic M&A market has undergone an important transformation due to the fact that 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 try to rely on their own resources or look for other sources of raising funds.

Remarkably, that a large share of mergers and acquisitions falls on the lower price segment. The number of transactions in the oil and gas sector has remained, although it remains attractive to investors.

Since 2014, the Czech Republic has been 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 operating in the service, information technology, and engineering sectors abroad, while foreigners are interested in Russian fuel and energy companies. Because of this, the Russian M&A market is affected 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. In third place are construction and development. Moreover, in terms of the number of transactions, this industry ranks first in the domestic economy. Although currency fluctuations also affect development, as they reduce the demand for commercial real estate. Metallurgy and the financial sector play an important role in the domestic M&A market. Moreover, the latter sphere is influenced by the position of Russian banks.

So, the 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 products and services encourages this process.

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