The Characters of the M&A Market in Russia and Implications

Byun Hyun Sub

doi:10.18107/japs.2008.15.1.010

After 2003 trends of foreign investment in Russia are changing from founding joint venture or small-scale corporation to large-scale investment with mergers and acquisitions (M&A). In the Russian M&A market in 2007 486 transactions for a total sum of 124.6 billion dollars are concluded. The growth of the market in 2007 in comparison with 2006 was by quantity of transactions 41%, on the sum 195%. There are some characters of the M&A market in Russia. First, concentration of the M&A market of Russia is very high - two fields (oil and gas and electric power industry) held 50% of volume of transactions and four industries (plus a mining and a communication) consist of two third in volume of M&A transactions. Second, the share of cost of transactions "Top-10" in a total sum of M&A transactions in Russia for 2007 has held 43%. Third, the M&A in food and drinks (50 cases), financial section (total 53 cases which include insurance) was accomplished actively above 50 cases, even though the volume of transactions is lower than that of energy industry. Fourth, Russian enterprises propelled M&A of foreign companies actively, as a result, in 2007 volume of overseas property acquisition by Russian enterprises(23.3 billion dollars) is equal to that by foreign companies(23.6 billion dollars) in Russia. In the future, a continuous diversification will be taken in the Russian M&A market. It is forecasted that the M&A will be accomplished actively in the consuming sector, that is, in the retail, food and drinks, finance with magnification of the consuming market which follows in high economic growth and income increase. Moreover, energy and mining enterprises with the liquidity secured by good performance and the Russian government with sovereign wealth fund will make a large purchase of overseas properties. The M&A transactions in the field of oil and gas, electronic power, mining, in which was accomplished previous big scale M&A will decrease. Because, interesting objects for M&A few remained as a result of completing privatization in the field of electronic power and sale of properties of YUKOS as well as restricted a foreign investment in the strategic industry with the reinforcement of state control against oil and gas, mining industry etc. 70-80% of the foreigners are entering Russian market through the M&A transactions. The Korean enterprises need to concentrate their efforts to M&A of Russian companies for the local production and sale, overcoming trade barrier, preparation of global business base etc. I think that the prospective field of M&A in Russia will be retail, food and drinks, finance with the high potential of growth in Russia to Korean companies in demand for security of new growth power and making profit sources because of high competition in domestic market.

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