The number of M&A deals in 2018 rose by 18% year-on-year, while the deal value fell by 7%.
In 2018 the deal value across the market declined by 7% year-on-year, to USD51.7 billion, mainly due to a lack of larger deals. However, there was a significant rise in the number of deals, from 552 in 2017 to 652 in 2018.
In 2018 only two key industrial sectors saw year-on-year growth in the value of transactions: oil & gas (by 96.8%) and consumer markets (by 55.6%). The largest falls in the total deal value were recorded in the banking, metals and mining, and real estate sectors.
Highest growth in M&A activity was seen in the Innovations & Technology sector, which in 2018 demonstrated a threefold year-on-year increase, to 113 deals, thus indicating the future investment vector in Russia. The government focus on digitalisation has led to increased interest on the part of Russian investors in foreign Innovations & Technology companies. In 2018 such deals accounted for 70% of total outbound deals, with the largest of these closed by DST, a Russian venture fund.
2018 can best be described as a year of consolidation in the Russian economy, as reflected by a number of large share buy-backs, with three of these in the top-10 M&A deals of the year, amounting to 15% of the total deal value. In contrast, share buy-backs in 2017 accounted for a little over 1% of the aggregate deal value.
Stabilisation in the Russian economy resulted in a moderate rise in foreign investments – in 2018, inbound M&A deal value grew by 23%. Europe and the Middle East saw the highest M&A activity, accounting for 42% and 35%, respectively, of the USD14 billion in inbound M&A announced in 2018. However, during 2018 the number of inbound transactions in Russia dropped by 21%.
Worth noting is that after a number of years of oil revenue recovery and a conservative fiscal policy, Russia is now much less dependent on foreign inflows to advance its investment programme.
“2018 can be viewed as being a wait-and-see period for investors, which tended to slow investment activity and placed expansion plans on hold. We expect ‘fat days’ to come in H2 2019 – early 2020, against a backdrop of macroeconomic stabilisation and given the government policy encouraging investment inflows into all key industrial sectors,” commented Lydia Petrashova, Head of Deal Advisory, KPMG in Russia and the CIS.
The largest growth in investor activity in 2019 is expected to be seen in consumer markets (with growth underpinned by a rise in disposable income and a recovery in purchasing power), and also in the IT sector, due to sustained interest from the government in digitalisation.
2018 was a year of uncompleted deals in the metals and mining sector, which witnessed strong activity in terms of preparing for transactions, searching for investors, organising financing, and holding negotiations, however, only a small number of deals came to fruition. Given the current backlog here, it can be expected that 2019 will see many announced and completed deals in the metals and mining sector.
This year the focus should also be on transactions to restructure the debts of banks’ corporate borrowers. The publicly disclosed value of such deals was below USD5 billion in 2018. Though this amount appears significant, we believe the actual value of restructuring deals was many times greater, in the range of USD60-100 billion. The second half of 2018 saw an important event in restructuring: the establishment of the Bank of Non-Core Assets, which began consolidating various debts and shares of the borrowers of banks undergoing financial rehabilitation. In 2019 we expect a lot of professionally organised debt restructuring deals from the Bank of Non-Core Assets.
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