Outbound M&A had to contend with volatile markets and a fragile European banking system in 2011, so it comes as little surprise that aggregate outbound deal value decreased by 19% from the previous year. Yet the number of deals increased by 30%, and many of the deals taking place suggest the pace of Russia’s growth and development has not been slowed by global economic headwinds. Just as US companies were the most active foreign buyers in Russia, the US was a relatively popular target region for Russian acquirers looking abroad in 2011, with four deals worth a total of €686m. The largest of these deals came from Sky Technologies, a firm that believes wholeheartedly in the future of new media: this year they took a 10% stake in Twitter for €563m and back in 2009 the firm lead a US$180m investment in online games producer Zynga and a US$200m investment in Facebook.
Click here to view graph: "Russian Outbound M&A trends"
Click here to view table: "Top 10 Outbound M&A deals, 2011"
Russian Corporation of Nanotechnology was also busy making acquisitions in 2011 but with a focus on the UK market, including a €112m investment in low-cost computer chip manufacturer Plastic Logic in return for 25% of the company and a 50% stake in biopharmaceuticals company Xenetic Biosciences for €18m. Underlying these transactions is Russia’s desire to diversify its economy, a process which is being catalysed by transactions which bring expertise to Russia in return for a cash injection and access to larger-scale manufacturing facilities. Part of the rationale for the Plastic Logic deal are plans to build a €550m commercial plastic electronics plant in Zelenograd, to begin operations in 2014 employing 300 people.
Click here to view chart "Outbound M&a volume by TARGET region, 2011"
Click here to view chart "Outbound M&A value by TARGET region, 2011"
Outside of the technology sector, outbound M&A has stayed closer to home. As far as specific target markets are concerned, the Ukraine has traditionally been a key region for Russian acquirers, and with a growing economy and middle class the region’s retail and services sectors are both growing in appeal. There was investment in the Ukrainian tobacco industry: Russia-based tobacco distributor Megapolis created a new Ukrainian arm through purchasing a 50% stake in Ukraine-based Angro and the entirety of ‘Distribution Company Demetra’. Further evidence that consumer demand in Ukraine is expected to continue to grow came from Russian private equity firm United Capital Partners Group’s 36% stake purchase in footwear manufacturer Monarch group. At the time of the transaction, UCP stated that they intended to open 130 stores in Russia over the next three years.
As usual, the energy industry has seen Russia expand into farflung markets rich in natural resources. In response to ageing domestic oil reserves, and Rosneft clinching the Arctic license, TNK-BP dipped into the Brazilian oil industry in 2011 with the €772m acquisition of a 45% stake in 21 oil blocks located in the Solimoes Basin from Brasil-based start-up company HRT. The chief-executive of TNK-BP’s Russian shareholding group, AAR, has suggested that further deals in Brazil could follow. Another strategic acquisition in Brazil took place in the agriculture sector and saw Sodrugestvo Group, the Russia-based company engaged in feed and soybean manufacture, acquire Lider Armazens Gerais, the Brazil-based grain transporter, for an undisclosed sum.
In 2012, investors may take advantage of low valuations while they can rather than waiting any longer for valuations to fall further, although the strength of the Rouble will need to be factored into their strategy. As was the case in 2011, energy and technology should sit at the top of the M&A agenda as Russia seeks to build its domestic strength by looking abroad.