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Record growth in Russia’s M&A market

February 13, 2008 | RBC

The total value of M&A transactions topped $124 billion in 2007

Russia’s market for merges and acquisitions (M&A) rose above $100 billion in 2007, to $124.638 billion, the M&A-Intelligence analytical group at the Merges and Acquisitions magazine has reported. The financial sector is expected to lead the field in 2008.

According to M&A-Intelligence, Russian companies performed 486 M&A transactions last year, worth a total of $124.638 billion. The number of transactions is 41 percent higher than in 2006, but their combined value is almost three times as much. A good illustration for 2007 is the acquisition by Gazprom of a controlling interest in Sakhalin-2 in February. Sakhalin Energy’s shareholders sold a 50 percent stake in the project for $7.45 billion.

Interestingly, the M&A market grew considerably from September to December 2007, matching growth in the previous eight months. This takes on added significance given the current slowdown in the global economy, the report states. The oil and gas sector was the leading industry on the M&A market, with 45 transactions worth $45.7 billion. It was followed by the electricity sector (23 transactions worth $18.3 billion) and the mining industry (25 deals worth $9.85 billion).

Andrei Zaikov, the head of M&A-Intelligence, expects more big deals in 2008, with an average value of between $1 billion to $1.5 billion, particularly in areas such as mining, oil and gas, electricity and metals.

For his part, Evgeny Gavrilenkov, chief economist at Troika Dialog, projects Russia’s M&A market to be worth over $150 billion in 2008. “The financial sector will be in the lead, banks in the first place, especially if the trend continues towards rising interest rates and lower state support for the banking sector,” he said.

Natalia Orlova, leading economist with Alfa Bank, also expects more M&A deals in the banking and insurance sectors in 2008. “In the banking sector, we can expect the merger of small and medium-sized banks due to the shortage of cash, as well as the sale of large banks to foreigners,” she told RBC Daily. “The insurance sector is facing reforms. For example, private medical insurance will be reformed, which could also lead to new mergers and acquisitions,” Orlova believes. On the contrary, the number of M&A deals in the oil and gas sector will be shrinking as few attractive M&A targets are left there, she reckons.

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