JUNE 2014 RUSSIA Private equity review IN THIS report 01 Executive summary 02 Russianp rivatee quityr eview: Q4 2013 and Q1 2014 04 Private equity consortium deals ni Russia 08 Tighteningt hes copeo f beneficial ownership 10 About Herbert Smith Freehills
Executive summary A slowing economy, recent political events and regulatory uncertainty all contributed to an overall slow down in private equity (PE) dealmaking activity in Q1 2014, particularly among international sponsors. It may yet be too early to assess the impact of these factors, as the market enters "wait and see" mode. Key market players, however, remain active and opportunistic, and a number of market participants are responding to the tough environment by increasingly using consortium arrangements to allow them to pursue investments. In this report we review deal activity over Q4 2013 and Q1 2014, look at consortium deals and analyse the impact of the recent tax guidance on deal structuring. At the start of the year, all eyes were on the IPO market as a test of investor appetite for Russian offerings. The IPO of Lenta, the retailer backed by TPG and VTB Capital, was particularly anticipated, as a landmark exit opportunity for two of the leading PE sponsors in Russia. It was hoped that this offering, together with several other eagerly awaited exits, would help spur further IPOs or trade sales, or indeed the use of dual track processes (where IPOs and trade sales are run in parallel). However, as economic and political storm clouds gathered, attention was drawn from coverage of PE activity and many transactions have hit the buffers. While many foreign PE houses remain cautious about allocating resources to Russia, particularly in light of recent events in Ukraine, several foreign sponsors continue to use consortium arrangements with Russian players as a means of 'de-risking' deals. As foreign sponsors look to their local counterparts to guard against perceived political risks, as well as to lower the size of their equity commitments, we expect the increased use of consortium structures to continue in the near term. We summarise some of the main issues relating to such structures on page four. Alongside these events, we have seen the Russian authorities announce new rules relating to the beneficial ownership of income which is paid from Russia to tax treaty countries, and new and evolving draft controlled foreign corporation (CFC) rules. Whereas it is presently too early to predict the impact of the proposed CFC rules (as redrafts of the proposed legislation vary significantly), it is already clear that PE investors will need to reconsider their investment structures and the management of their portfolios now (see section Tightening the scope of beneficial ownership on page eight). Ongoing uncertainty is likely to see a delay in planned activity in the near term, while PE investors pick the right time to come to market and reorganise their portfolios in response to the changing tax and regulatory environment. The response of Russia's leading sponsors to these most recent challenges will, in large part, dictate whether Russia's PE market can in the coming years develop the scale, liquidity and depth which has long been awaited. US$9.9 billion The collective value of the private equity transactions on which our Moscow team advised in Q4 2013 and Q1 2014 €73.9 billion of capital invested in PE deals in Europe in Q4 2013 and Q1 2014 €44.1 billion of capital exited in PE deals in Europe in Q4 2013 and Q1 2014 82 PE deals in Central and Eastern Europe in Q4 2013 and Q1 2014 Source: European PE Breakdown, Q2 2014, PitchBook 02 HERBERT SMITH FREEHILLS Global context Q4 2013 and Q1 2014 saw a global resurgence in general M&A activity and in particular PE activity, with US$111.9 billion worth of PE exits recorded in Q1 2014 (the highest recorded value for a first quarter since 2001, per Mergermarket). Most of this activity, however, focused on the more established markets of North America and Western Europe, with 56% of aggregate global exit value generated in North America alone. Russian activity The emerging economies also experienced a stronger start to 2014 than 2013, but overall activity in Q1 2014 was down substantially from the levels seen in Q4 2013. In Russia the anticipated pipeline of PE exits and privatisations failed to materialise in Q1 2014. However, significant exits were still achieved notably through the London IPO of Tinkoff Credit Systems in October 2013 and the London and Moscow IPO of Lenta in February 2014. Some PE sponsors and other observers were disappointed that external events deflected attention from these exits, which could otherwise have marked a turning point in attempts to focus global attention on the Russian market. Raising new funds Russia-focused PE fundraising was muted in Q4 2013 and Q1 2014, but there were some bright spots. Da Vinci Capital held the first closing of its second PE fund and in February, Elbrus Capital closed its US$550 million Elbrus Capital Fund II. In February it was also reported that UFG Private Equity, Russia Partners (a subsidiary of US firm Siguler Guff) and Aton Capital Partners were targeting fresh fundraisings. The outcome of these proposed fundraisings will be watched closely, as they will be indications of the prevailing market sentiment towards the Russian PE space. Investment and exits The main players in the Russian PE market were involved in significant PE transactions during the period under review. As noted above, however, overall activity levels were not as high as the market had hoped. Recognising, as we do, the lack of generally accepted boundaries between 'types' of PE investors in Russia, the three principal segments of the Russian PE market driving Q3 2013 and Q1 2014 deals, by both value and volume, can be described as: Russian private equity investors, especially government-backed sponsors and financial institutions, such as VTB Capital, Sberbank CIB and the Russian Direct Investment Fund (RDIF). VTB Capital's exit from Lenta built upon its strong track record of exits, such as the on-market sale of its stake in Luxoft, and its 2012 exit from EPAM Systems via a secondary listing. Sberbank CIB was also active, acquiring convertible preferred stock amounting to a 33% stake in Multinational Logistics Partnership. In the quasi-sovereign wealth fund space, RDIF announced a number of joint investment platforms with foreign sovereign wealth funds, including with Italy's Fundo Strategico Italiano and Bahrain's Mumtalakat. These were in addition to more traditional-style co-investments with other PE players, such as its co-investment with Deutsche Bank in Rostelecom, Baring Vostok Capital Partners in Tigers Realm Coal Ltd and EBRD in Cotton Way. Apart from Baring Vostok Capital Partners, other non-"captive" domestic PE investors were also active, including Da Vinci Private Equity Fund II which in February this year acquired a controlling stake in IT Invest, a Russia-based provider of brokerage services. Foreign private equity investors (of all types, captive and PE sponsors with independent limited partners). Significant transactions included a consortium of Titan International Inc., One Equity Partners and RDIF acquiring a controlling stake in OJSC Voltyre-Prom from Cordiant and Goldman Sachs co-investing with VTB Capital in Russian Fitness Group to increase their stakes to a combined 50%. However, as with the market generally, foreign players were less active than in previous periods, with many adopting a 'wait and see' approach, particularly following the events in Ukraine. Russian investment groups, especially Onexim, AFK Sistema, Interros, Alfa Group and LetterOne. In general, these groups have the most institutional flexibility and the IPO of Tinko Credit Systems Exiting investors: Vostok Nafta, Goldman Sachs, Baring Vostok Capital Partners Investment into Tigers Realm Coal RDIF, Baring Vostok Capital Partners Investment into Rostelecom RDIF, Deutsche Bank Investment into Voltyre-Prom Titan International, One Equity Partners, RDIF Investment into NPO Petrovax Pharm Interros Secondary exit from Luxoft VTB Capital Investment into Impersky Dom oce centre RCPP II (UFG Real Estate) OCT 2013 NOV 2013 DEC 2013 Recent examples of Russia n pri vate eq uit y dea ls Ru ssian private equity review: Q4 2013 AND Q1 2014 HERBERT SMITH FREEHILLS 03 greatest resources dedicated to Russia of the investors active in the PE sector, and therefore are a very large presence in the market. Notable transactions include the acquisition by Onexim Group and certain companies associated with it of an approximate 27% stake in Uralkali and in March this year LetterOne announced that it had agreed to purchase the oil and gas subdivision of German utility RWE. LetterOne is a relatively new entrant in the market having been founded in 2013 and is the investment vehicle of the Alfa Group shareholders. A look ahead Unsurprisingly recent events in Ukraine have made many investors cautious about Russian investments in the near- to medium-term. Many observers think that there could be a marked increase in activity in the second half of 2014 if regional events stabilise in Q3. They are, however, watching closely to see whether the present instability will narrow the valuation gap which has historically curbed enthusiasm for foreign PE investment in Russia. Potentially of equal significance for investors is the impact of the Russian government's de-offshorisation initiative on the regulatory environment. At the same time as the development of the de-offshorisation programme, significant changes are being introduced to the Civil Code that are designed to create a more flexible onshore legal environment. A number of observers have commented that these measures will together put pressure on Russian PE investors to return capital to Russia and invest directly into Russian portfolio companies. Very interesting times lie ahead for investors in, and observers of, the Russian PE market. Investment into Uralkali Onexim Investment into Russian Fitness Group Goldman Sachs, VTB Capital Investment into RWE (announced) LetterOne IPO of Lenta Exiting investors: TPG Capital, VTB Capital Investment into Cotton Way RDIF, EBRD Investment into IT Invest Da Vinci Private Equity Fund II Investment into Multinational Logistics Partnership Sberbank CIB JAN 2014 MAR 2014 FEB 2014 Private equity – what does it mean in Russ ia? Debate remains about what "private equity" means in Russia. It may refer to any of: "true" or "pure" private equity funds with multiple unrelated limited partners (eg, TPG Capital and Baring Vostok Capital Partners); "captive" private equity funds with essentially a sole LLP, many of whom seek co-investment from leading PE sponsors (eg, VTB Capital and RDIF); and domestic investment groups (eg, Onexim, AFK Sistema and Interros). There are few "bright lines" in this space and what lines there are can be blurred further where single transactions involve co-investments by various PE players. An example of this is the co-investment in Tigers Realm Coal Ltd by Baring Vostok Capital Partners and RDIF. In recent years, the Russian private equity market has been transformed by the emergence of government-backed sponsors and financial institutions, such as RDIF and VTB Capital, as Russia has pursued its strategic objective of supporting the growth of a local private equity market. Against this backdrop, there are around 45 private equity funds currently raising capital for investment in Russia and/or investing in Russian assets (source: Preqin). For the most part these funds include Russia as part of their geographical range, but a small proportion target Russia exclusively. Most of the funds by volume target venture capital and early stage development but by value the focus remains on buy-outs. Acknowledging the need for local knowledge, the vast majority of these funds are managed by Russian based fund managers in whole or in part. 04 HERBERT SMITH FREEHILLS DRIVERS FOR CONSORTIUM DEALS IN RUSSIA Consortium transactions are popular in the Russian PE market for a number of reasons. Some of these are common drivers for consortiums deals, while others are specific to the Russian market. Pooling expertise and accessing foreign capital Forming a consortium allows the members to benefit from the experience, expertise and influence of the other members. Russia is often viewed (rightly or wrongly) as a place where a strong local partner is desirable in order to operate a successful business. Indeed, many of the international sponsors investing alongside local partners would not consider investing in Russia without a domestic partner. By joining up with local sponsors, foreign investors seek to leverage the local knowledge and connections of the Russian partner. Russian partners are therefore often tasked with deal origination, smoothing government relations and navigating the complex regulatory landscape. For their part, Russian parties look to benefit from the execution experience and sector knowledge which an international sponsor often brings to the table. Risk-sharing and diversification Consortium bids allow investors to share the risk of equity investments and increase the diversity of their investment portfolio. However, if there is significant overlap between an investor's limited partners and those of other consortium members, this may negate the intended diversification. Allows access to larger deals Unlike mature PE markets, Russia is yet to see a stream of blockbuster deals and some of the largest buy-out deals in Russia would be approximately equivalent to deals at the upper end of the mid-market in Europe. That said, joining together with other sponsors allows investors to acquire together a larger stake in a target. Equally, on larger deals, teaming up may allow PE investors to access deals which would otherwise not be open to them (because of their governing documents). The lack of debt financing Although international PE investors traditionally depend heavily on acquisition finance to leverage their investments, this practice is less prevalent in Russia, where the significant majority of deals are "equity only" investments. Clubbing together thus provides extra financing resource for investors. Reputational value Both international investors and local Russian investors can seek to benefit from the reputation and track record, of their counterparts. For a local Russian investor, a prominent international co-investor offers a seal of approval which the consortium can later seek to leverage in exit discussions. International sponsors are therefore sometimes invited to join a consortium at a later stage, as pre-exit cornerstone investors. Foreign investors can benefit from the reputation of a select group of local PE houses – true "Russia experts", with established track records - and may well find that investment committee approvals are easier to obtain where they partner up with these investors on the ground. PRIVAT E EQUITY CONSORTI UM DEALS IN RUSSIA The trend towards consortium bids, where two or more PE sponsors jointly acquire an interest in a target, looks set to continue. This is particularly the case in respect of larger Russian PE deals and those involving international investors. Recent examples of consortium deals in Russ ia: The investment by VTB Capital alongside Goldman Sachs and the founding shareholders in Russian Fitness Group, the largest fitness operator in Russia, operating under the World Class, World Class LITE and FizKult brands The acquisition by Titan International, RDIF and One Equity Partners (the private investment arm of JPMorgan Chase & Co) of Voltyre-Prom, a leading Russian agricultural tire manufacturer The joint investment by RDIF and funds advised by Baring Vostok Capital Partners in Tigers Realm Coal Limited, an Australian company controlling a coking coal field in Russia's Far East HERBERT SMITH FREEHILLS 05 feat ures of dire ct and indire ct invest ment Dire ct invest ment indire ct invest ment thr ough spV Transparency – the rights of each party will be set out for each party to see in the relevant shareholders' or investment agreement. Easier for consortium members to keep the rules governing their relation with each other confidential vs other shareholders/management. Higher transaction costs with the need for a separate consortium SPV and a document governing the consortium members' relationship. Direct contractual recourse against each party to the shareholders' agreement for all parties. The need to negotiate the rights of each party to the shareholders' agreement may increase the duration of negotiations and complexity of the document (as opposed to treating the consortium en bloc and allowing them to negotiate their rights between themselves in parallel). Equally, a bid may be viewed as less attractive if a seller or management are required to give, for example, reserved matters to each individual consortium member. Existing shareholders/management only have to deal with one counterparty. Non consortium shareholders may increase their exit related rights if, for example, they benefit from rights of first offer/refusal where each consortium member seeks an exit. Linking exit rights at the level of the JVCo and the consortium SPV may be complicated. CONSORTIUM MEMBER 1 CONSORTIUM MEMBER 2 CONSORTIUM MEMBER 3 JV Co OPERATING SUBSIDIARIES SHAREHOLDERS/ MANAGEMENT DIRECT CO-INVESTMENT WITH MANAGEMENT CONSORTIUM INVEST Co SHAREHOLDERS/ MANAGEMENT CONSORTIUM MEMBER 1 CONSORTIUM MEMBER 2 CONSORTIUM MEMBER 3 JV Co OPERATING SUBSIDIARIES INDIRECT INVESTMENT THROUGH CONSORTIUM SPV CONSORTIUM MEMBER 1 CONSORTIUM MEMBER 2 CONSORTIUM MEMBER 3 JV Co OPERATING SUBSIDIARIES SHAREHOLDERS/ MANAGEMENT DIRECT CO-INVESTMENT WITH MANAGEMENT CONSORTIUM INVEST Co SHAREHOLDERS/ MANAGEMENT CONSORTIUM MEMBER 1 CONSORTIUM MEMBER 2 CONSORTIUM MEMBER 3 JV Co OPERATING SUBSIDIARIES INDIRECT INVESTMENT THROUGH CONSORTIUM SPV 06 HERBERT SMITH FREEHILLS KEY ISSUES FOR LEGAL DOCUMENTATION Structuring One issue that often arises in consortium deals is whether the investors will invest directly in the target group alongside management/ existing shareholders, or whether they will have a separate acquisition vehicle through which their shareholding in the target group is held. The chart above sets out the features of direct and indirect investment. Regulatory Approvals Specialist advice will be needed as to what (if any) regulatory approvals are needed in respect of the proposed transaction. It will be particularly important to assess whether any existing investments of any of the consortium members may serve to impact the regulatory analysis, and indeed whether the size and scale of any single investor poses issues. As well as the Russian Federal Anti-Monopoly Service (FAS) approvals, the relevance of EU competition law analysis (and the potential need for approvals – even where the target has very limited European sourced turnover) can often be overlooked on Russian deals, particularly on deals involving institutional investors. Shareholder arrangements The issues which will arise when negotiating the shareholders' or investment agreement will be similar to those arising on any joint venture (typically focussing on governance issues, exit rights, share transfer restrictions). We set out below particular points to consider in a consortium scenario. Governance issues Appointment of directors and management The appointment rights which the shareholders will have will depend on the extent of their shareholding and their role in the business. For example, will there be a lead PE investor joined by passive financial investors, or does the consortium include a strategic investor who will be managing the business day to day? It is common for investors with a stake of 5% to 10% and above to have the right to appoint at least one director in order to monitor the investment and exercise veto rights. Above that threshold, there is no generally accepted market practice and the rights attaching to their shareholding and whether they lose any rights if they fall below a certain threshold (so called "sunset" provisions) will be open for negotiation. Reserved matters As with any joint venture there is likely to be a list of actions in respect of which investors want veto rights. The extent of these rights will be linked to the level of each party's equity stake and their role in the business. Crucially, in structuring any bid, the consortium will need to consider whether members may exercise reserved matters individually, collectively or through qualified majorities. Each option would impact on the attractiveness of a bid, as well as deal complexity. Dividend policy Where the investors comprise a mix of different types of PE sponsor, or indeed include a strategic investors, then the parties may have a different view as to the payment of dividends. PE investors will usually be happy to retain profits in the target group and rely on an exit for their returns (although preferences can vary markedly among Russian PE sponsors), whereas a strategic investor may want to maximise regular dividend payments in order to secure a steady income stream. Non-compete/change of control undertakings PE funds will typically not be able to give change of control undertakings by virtue of their corporate structure. However, the position may vary in the case of captive PE sponsors, or Russian investment groups. In any event, other parties, ie strategic investors, would normally be expected to give such undertakings. Similarly, PE investors may expect a strategic investor to give more stringent non-compete undertakings. By comparison PE investors will not give them or will at least include carve outs from such undertakings, especially where the PE investor is a large financial institution with a large number of business lines. Deadlock A deadlock may be more likely to arise where there are more players. Deadlock resolution mechanisms should be carefully considered to avoid parties becoming subject to a forced exit (through a shoot-out procedure or similar). Share transfers There may or may not be a requirement for shareholders to be subject to a lock-up on share transfers for a certain period post-closing. In addition there may be differing views as regards to whom share transfers can be made (when permitted). In particular, strategic investors will not want shares to be transferred to competitors in the same market and jurisdiction. Exit More so than elsewhere, it is likely that in the Russian market PE investors will be looking for preferred returns and/or guaranteed exit rights. Where the consortium consists of PE investors and strategic investors, this may mean that the strategic investor is on the hook to provide the financial investors with an exit at a certain time for a minimum price. Exercising rights under the purchase agreement The consortium members should consider what majority is required for the consortium vehicle to exercise rights (eg, of termination) under the purchase agreement. It is likely that this will be a majority matter or unanimous reserved matter under the related shareholders' agreement. Private equity con sortium de als in Ru ssia HERBERT SMITH FREEHILLS 07 APP ROACH TO NEGOTIATIONS The consortium members are likely to have differing levels of involvement in the negotiations of the transaction documents. This may be by design or for practical reasons, eg, the location of meetings or the language in which these meetings are conducted. Consortium members should consider their approach to negotiating transaction documents from the outset. A seller will usually prefer to negotiate with one counterparty rather than have to deal with each consortium member separately. In particular international investors should bear in mind the following points: Objectives and risk exposure: international investors may have different objectives to their local partners and financial investors will have different objectives to strategic investors. Likewise the risks faced by each investor may not be the same. International investors and local partners may have different approaches to reputational and compliance issues. Future role in business: where the consortium is formed by a mix of financial investors and a strategic investor, the strategic/managing investor should arguably take a greater role in the due diligence and disclosure process as it will need to know the business being acquired and any issues which need to be rectified in order to run it successfully from completion. This may be particularly the case where the financial investor has a preferred return or other preferred exit rights. GUARANTEE D SUCCESS? Whilst in theory joining with other sponsors, including local partners, in a consortium to co-invest in a Russia target can bring many advantages for a PE sponsor, converting the theory into practice is not straight forward. The industry is still developing in Russia and as a whole it needs to gain more experience in structuring co-investments and, equally importantly, navigating the course to successful exits. International investors should not assume that having a local partner is a guarantee of success or will mean that every problem that arises will be easy to solve. For many of the perceived benefits to be realised, hard work will be required throughout the life of the consortium to ensure that the responsibilities and expectations of all parties are calibrated in what remains a difficult deal environment. 08 HERBERT SMITH FREEHILLS In the context of the de-offshorisation drive being pursued by the Russian government and as part of the draft law which will introduce controlled foreign company (CFC) rules in Russia for the first time, the doctrine of "beneficial ownership" is being examined with far greater scrutiny in Russia than ever before. The concept of beneficial ownership is very important when structuring PE investments. Under the OECD Model Tax Treaty (which forms the basis of most Russian tax treaties), treaty benefits, such as withholding tax exemptions or reductions, are only available where the recipient of the income is the beneficial owner. Ensuring that the recipient in the relevant treaty jurisdiction is viewed as the beneficial owner is therefore key. Getting it wrong can result in tax reliefs not applying and significant unexpected tax liabilities. In the past, the inclusion in the ownership chain of an intermediary incorporated in the jurisdiction was typically viewed as sufficient to benefit from the relief granted in the relevant tax treaty. It is now apparent that going forward the mere insertion of such a local entity will not be sufficient. The Russian Ministry of Finance (Minfin) has recently published a letter with guidance on the concept of beneficial ownership. In this letter, Minfin made it clear that it views as abusive those structures where income is channelled through treaty countries, thereby benefitting from the reliefs available under the treaty, but subsequently paid on to non-treaty countries and where the recipient in the treaty country has limited powers over the income. The letter linked beneficial ownership of income to the ability to derive benefit from the income and to determine its economic fate. Other factors which Minfin noted in its letter were based on risk and functional analysis but the letter did not contain any guidance on how these factors may operate in practice. Whilst no legislative changes have been made in relation to the concept of benefit ownership and although the draft law containing the CFC rules and the definition of beneficial ownership remains a moving feast, there is no doubt that the approach to beneficial ownership is changing. The Russian tax authorities are becoming more sophisticated and rigorous in their assessment of applications for relief. There will be greater examination of the substance of ownership structures and the nature of the relationship between, and the functions of, the various entities in these structures. Where entities are acting as mere conduits or agents for the true beneficial owners, they may be disregarded for tax treaty purposes. PE investors need to be alive to this issue in the context of their investment structures and should seek tax and legal advice on it. Investors should consider whether it is feasible to replace companies resident in offshore jurisdictions with companies resident in treaty countries. The role of finance companies in the investment chain should be examined to ensure that the use of these companies is justified in the context of the role of these companies and the risks they assume. TIGHTENING THE SCOPE OF BENEFICIA L OWNERS HIP App lying the new approach in practice In the light of the changing attitude to the doctrine of beneficial ownership, structures which have commonly been used when making investments in Russian assets in the past may in the near future no longer operate in the intended fashion. Taking by way of example the ownership of a Russian asset by a Cypriot company (managed locally), which in turn is owned by a BVI incorporated investment fund. When looking at whether income distributed by the Russian asset to the Cypriot entity will be subject to the reduced rates available under the Russian tax treaty with Cyprus, the relevant factors will include: the powers of disposal that the Cypriot company has in relation to the income. The more limited these are, the less likely it is that the Cypriot company will be viewed as the beneficial owner. who derives the economic benefit from the income and determines its economic fate? the functions that the Cypriot company is performing. Are these merely intermediary/conduit functions or is the Cypriot company carrying out other functions? the risks assumed by the Cypriot company. If the Cypriot company is viewed by the Russian authorities as not being the beneficial owner, relief would not be available. The authorities would then look up the ownership chain to the BVI investment fund and consider the tax position in relation to income distributed to that entity. HERBERT SMITH FREEHILLS 09 PE DEAL COUNT BY REGION Nordic 1Q 2014: 64 4Q 2013: 52 UK and Ireland 1Q 2014: 219 4Q 2013: 225 France and Benelux 1Q 2014: 90 4Q 2013: 109 Southern Europe 1Q 2014: 37 4Q 2013: 67 Central and Eastern Europe 1Q 2014: 40 4Q 2013: 42 Germany, Switzerland and Austria 1Q 2014: 82 4Q 2013: 99 Deals by Region Source: European PE Breakdown, Q2 2014, PitchBook 10 HERBERT SMITH FREEHILLS Abou t Herbe rt Smith Freehill s Herbert Smith Freehills advises on all aspects of private equity transactions in Russia and is the only law firm which has a dedicated PE team on the ground in Moscow, including funds lawyers. 1. FUND FORMATION AND CAPITAL RAISING 4. EXIT 2. INVESTMENTS 3. OWNERSHIP AND GROWTH Broad experience of late-stage 'anchor' or 'cornerstone' pre-exit investment deals Advising on pre-exit re-organisations, optimising targets and capital structures to maximise possibility of a successful exit Resources to run complex and large-scale auction sale processes out of Moscow Ability to efficiently manage dual-track processes Understanding of the Russian strategic and secondary markets Tier 1 restructuring practice, with leading Russian and English law banking partners Deep understanding of incentive arrangements customary in Russia – from shadow equity to carry arrangements An M&A team that seeks to develop relationships with investee companies during the lifetime of an investment, well placed to assist with bolt-on investments or divestments Unrivalled Moscow-based disputes team, safeguarding your asset The only dedicated fund formation team based in Moscow As an alternative to classic PE fund formation, bespoke co-investment platforms and joint venture arrangements popular with Russian investment groups Understanding of the preferences of the different LPs investing in Russia – ranging from foreign Sovereign Wealth Funds to Russian family offices Full service capacity in Moscow, offering: integrated legal and tax deal structuring, without the need for a separate tax advisor seamless Russian and English law advice on transaction documents, with the largest team of English lawyers on the ground in Moscow the tailored commercial and red flag legal due diligence valued by PE investors a dedicated regulatory practice Particular expertise in special situations and event-driven M&A A leading acquisition financing practice, with considerable experience of lending work to Russian PE HERBERT SMITH FREEHILLS 11 Our experience We have set out below some of the transactions on which we advised in Q4 2013 and Q1 2014 and which reached key milestones during this period. se ctor target invest or our role Leis ure Russian Fitness Group VTB Capital, Goldman Sachs Advisor to an investor Me dia ProfMedia Gazprom-Media Holding Advisor to Seller Mi ning Tigers Realm Coal Limited Baring Vostok Private Equity Fund V, RDIF Advisor to an investor Mi ning Uralkali Onexim Advisor to Investor Financia l ser vices Tinkoff Credit Systems Bank Public offering Advisor to Seller Pharmaceuti cals NPO Petrovax Pharm Interros Advisor to Investor Ser vices Cotton Way RDIF, EBRD Advisor to Target Industria ls Voltyre-Prom RDIF, One Equity Partners, Titan International Advisor to Investor Rea l estate Multinational Logistics Partnership Sberbank CIB Advisor to Investor Telecom Altimo Confidential Advisor to Seller contacts in mosc ow Alexei Roudiak Partner Head of Corporate – Russia T +7 495 363 6534 [email protected] Tomasz WoŹniak Partner T +7 495 783 7498 [email protected] Edward Baring Partner T +7 495 783 7495 [email protected] Mark Geday Partner T +7 495 363 6507 [email protected] Evgeny Zelensky Partner T +7 495 783 7599 [email protected] Oleg Konnov Partner T +7 495 363 6531 [email protected] Artjom Buligin Partner T +7 495 363 6518 [email protected] CONTRIBUTORS This publication was prepared by Mark Geday Partner Tomasz WoŹniak Partner Justin Vaughan Senior associate Andy Young Senior associate Sergei Eremin Senior associate Daria Nazarova Head of business development, Russia Isobel Hoyle Associate 12 HERBERT SMITH FREEHILLS no tes HERBERT SMITH FREEHILLS 13 SHANGHAI Herbert Smith Freehills LLP Shanghai Representative Office (UK) T +86 21 2322 2000 F +86 21 2322 2322 SINGAPORE Herbert Smith Freehills LLP T +65 6868 8000 F +65 6868 8001 SYDNEY Herbert Smith Freehills T +61 2 9225 5000 F +61 2 9322 4000 TOKYO Herbert Smith Freehills T +81 3 5412 5412 F +81 3 5412 5413 MELBOURNE Herbert Smith Freehills T +61 3 9288 1234 F +61 3 9288 1567 MOSCOW Herbert Smith Freehills CIS LLP T +7 495 363 6500 F +7 495 363 6501 NEW YORK Herbert Smith Freehills New York LLP T +1 917 542 7600 F +1 917 542 7601 PARIS Herbert Smith Freehills 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