OREANDA-NEWS. On 02 March 2009 was announced, that the Russian mergers and acquisitions (M&A) market totaled USD 120 billion in 2008, just 9% below the figure for 2007, according to Ernst & Young's sixth annual overview of the Russian M&A market. The financial crisis which developed in the fall of 2008 brought drastic change to the M&A market. However, thanks to a very active market in the first six months of the year, total transactions did not fall significantly.

Other key findings of the survey:

1,039 transactions were made in Russia in 2008. The number of deals grew against 2007, with the total market volume falling only insignificantly — indicating improved transparency and greater involvement of small and medium businesses while also signaling reduced asset value and a large number of transactions with distressed assets seen at the end of 2008 with the financial crisis in full swing.

The volume of Russian acquisitions by foreign buyers exceeded the 2007 figures by 42%, totaling USD 28.6 billion. At the same time, the number of foreign targets acquired by the Russian buyers decreased insignificantly, totaling USD 20.5 billion.

As in prior years, the greatest activity in cash terms was seen in the oil and gas, power, and metals and mining sectors. Their aggregate share in the total Russian M&A market in 2008 was 47%. Activity in other industries is also on the rise, as suggested by the growing share of other industries in the total M&A market.

The crisis in the Russian economy resulted in reduced general activity in the Russian M&A market: beginning September 2008, many companies revised and cut back their investment programs; the number of uncompleted deals grew; the nature of the deals changed and the government played an increased role in the Russian M&A market.

Average deal size, at USD 116 million, fell by almost half from the previous year. This indicates a stronger performance by mid-sized players in the M&A market in 2008, but also points to the emergence of deals with distressed assets as a result of the financial crisis.

According to the survey, in 2008, acquisition of Russian assets by Russian buyers accounted for USD 99.5 billion or 83% of all deals. The amount of Russian and international acquisitions fell by 8% and 11%, respectively, year-on-year. This modest reduction was on the back of rapid growth of the Russian M&A market in the first nine months of 2008. The last three months of the year were marked by the effects of the global downturn.

Russian M&A market trends

The Russian M&A market in 2008 saw two types of trends: further development and explosive growth observed in the first nine months of 2008, followed by economic turbulence persisting since last fall. The latter is likely to gain ground and prevail in 2009.

"We expect a weaker performance of the Russian M&A market in 2009 compared to last year," notes Hakob Sarkissian, partner at Ernst & Young and leader of the Transactions practice. “It will primarily be seen in the reduction of the total number of deals across the board, value and size of deals as such, as well as increased number of deals with distressed assets, assets of bankrupt companies and non-cash mergers. Potential buyers will keep a close watch on the basic performance indicators of the targets, i.e. cash revenues and sustainable business models."

The major 2008 deals were closed in the finance, oil and gas, power and metals and mining sectors.