84% of business owners in Russia are willing to give up part of the assets due to their inefficiency or any identified risks. But the demand for these assets is not enough: only 32% of investors are ready to invest in new projects. This follows from the results of the global survey “Capital Confidence Barometer” by the audit and consulting group EY.
“The main activity of the market is related to the sale of small and medium — sized businesses, and at the moment the supply exceeds the demand: only 32% of respondents plan to purchase,” as per EY department of consulting services for CIS transactions.
Of those 84% Russian respondents, 33% are willing to sell economically inefficient assets and 51% are willing to sell assets that involve a “risk of business shutdown”. At the same time, the study itself was conducted last spring and coincided with the April round of US sanctions against large Russian businesses. The survey was attended by 60 managers of Russian companies from 14 sectors of the economy.
55% of respondents in Russia called geopolitical tensions the main risk threatening business development. Also of concern are changes in trade policy, exchange rate volatility and digital transformation.
The desire of owners to abandon illiquid assets is natural, experts say. “The crisis has weakened the position of small and medium-sized businesses, which suffer from the restrictions imposed on Russia, as well as from the instability and tightening of the requirements of regulators. At the same time, the State does not provide such support to them as they do to large business,” the text of the study emphasizes.
The volume of transactions in the market of mergers and acquisitions involving Russian companies in the first half of 2018 has more than doubled and reached a record since 2014 $13.5 billion, noted earlier analysts from Thomson Reuters. The number of transactions was the lowest in ten years — only 499.
As noted by EY, the amount and number of transactions for the acquisition of Russian companies by foreign investors have decreased. According to Thomson Reuters, the acquisition of Russian assets by foreign companies decreased by 15% in quantity and 11% in value terms. EY experts explain the trend of oversupply in the market and difficulties in assessing the investment attractiveness of assets.
The trend of reduction of the number of mergers and acquisitions will continue. The decline in activity is associated with the growth of economic risks and the deterioration of business lending conditions. The main risks are still in the political landscape. Internal and external factors give rise to the impossibility of long term planning and a confident assessment of the prospects of investment.
The high volume of transactions in the Russian M&A market in the first half of 2018 was achieved largely due to the consolidation of banking institutions against the background of the Central Bank’s strict policy on revocation of licenses. The greatest result was achieved due to the sad fact for the market — the reorganization of the two largest private financial institutions, FC OTKRITIE and Promsvyazbank, the transfer of assets of the latter to the ownership of DIA was estimated at a record $4.25 billion.
At the same time, the majority of Russian executives surveyed by EY (89%) believe that the number of completed transactions will increase in 2018. Taking into account the favorable changes, the increase in profitability and availability of loans, many believe that the best is yet to come. Business hopes for improvement are associated with the return of private equity funds as the main buyers of assets.
In June, the head of the Russian Direct Investment Fund (RDIF) Kirill Dmitriev promised to invest more than 7 trillion rubles in infrastructure and high-tech projects in Russia. At the end of 2017, the Fund has created a new investment platform “RDIF Technology.”
Predictions of decrease in activity in the M&A market in the second half of the year are still there. Some transactions in the first half of the year were postponed just because of the new US sanctions, because it is unknown how the Russian economy will behave in the face of new restrictions, market participants are likely to go the way of postponing strategic decisions, such risks in conditions of economic uncertainty is unlikely to give the opportunity to receive good dividends. The main risks for the development of the market remain, and ncertainty in the economy against the backdrop of a sharp weakening of the ruble, VAT increase and decline in consumer activity add to it.