Mergers and acquisitions activity in Russia sunk by 62 percent in 2009, with just $46.1 billion in deals, compared with $122.4 billion a year earlier, consulting company KPMG said Wednesday.
The M&A market crumbled as the financial crisis ushered in higher levels of uncertainty about future economic development, increased risk aversion, a larger gap in valuation expectations between buyers and sellers, and a liquidity crunch that made it difficult to fund deals, KPMG said in its annual report on the market.
Among the sectors most influenced by the crisis — and therefore showing the largest declines in M&A activity — were consumer goods and retail, financial services and metals and mining, which were all down by about 80 percent, the report said.
"The M&A market in 2009 was very difficult, with transactions few and far between," Thomas Dix, head of transactions and restructuring at KPMG, said in a statement.
Relative bright spots were the oil and gas sector, as well as communications and media, which were the best-performing parts of the Russian M&A market. The oil and gas sector accounted for just less than half of the total market, reaching 49.9 percent, while communications and media deals represented 22.6 percent of the total.
Topping the list of big consolidations last year was the merger of VimpelCom and Kyivstar, worth $5.5 billion, KPMG said.
In real terms, however, the volume of transactions in the communications and media sector fell 8 percent to $10.4 billion. The volume of M&A deals in the oil and gas sector had the biggest increase, jumping 95 percent year on year to $23 billion.
Consolidation dropped off sharply in the metals and mining sector, which was hard hit by weak prices for their products and "the difficult funding environment," the report said.
The sector accounted for 9.1 percent of mergers and acquisitions last year, with just $4.2 billion in transactions. In 2008, metals and mining companies were responsible for 18.6 percent of Russian M&A activity, with $22.8 billion in deals.
The largest deal in the sector last year was the $1.3 billion acquisition of a 37 percent stake in Polyus Gold by Wandle Holdings, a company representing the interests of Suleiman Kerimov's Nafta-Moskva.
The slump in deal activity in the financial services sector was largely driven by the weak operational performance of Russian banks and low appetite from foreign investors, the report said. Transaction volumes for the sector fell by 84.5 percent to $1.7 billion, from $11 billion in 2008.
"The transactions that took place in 2009 were relatively small in size and limited in number. Many of the deals that occurred included on the buy side either government-affiliated entities, or cash-rich companies that could take advantage of distressed situations," KPMG said in the report.
The largest banking deal was the state-led rescue of VEFK Bank, which was subsequently renamed Petrovsky. The Deposit Insurance Agency, Nomos Bank and Otkritie purchased the lender for $296 million in April, with the private banks taking 25 percent each in a secondary share issue, while the state corporation acquired the rest.
The transaction volume of the consumer markets and retail sector fell by 79 percent to $2.3 billion, bringing the sector's share to just 5 percent of the total M&A market, the report found.
The Russian M&A market in 2009 was about twice as large as in India and three times as big as in South Africa, Thomas Beck, KPMG's M&A director, told The Moscow Times. Russia accounted for roughly 5 percent of the European M&A volumes last year, he said.
But this year should be better for investment banks looking to organize lucrative mergers and acquisitions. KPMG said the market would likely see a 50 percent increase in transaction volumes — still far below pre-crisis levels.
"We would not be surprised to see Russian M&A grow more strongly in 2010 than global M&A, with the relative share of the Russian M&A market increasing as a result," Beck said.
"It was a hard year for the investment banking sector. Many of Russia’s investment banks had no M&A deals at all, since there was a large gap between expectations of buyers and sellers,” said Sherzod Yusupov, vice president of the investment banking unit at UniCredit.
“Those M&A deals in the sector that were, however, closed last year were of a forced-to-sell nature, not voluntary ones,” he told The Moscow Times.