Russian M&A H1 2014

August 2014

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KPMG in Russia and the CIS

Headlines

Russian M&A fell by 36% in H1 2014 to The share of domestic M&A increased USD27.8bn; the lowest level since the from 60% to 76% of Russian M&A in H1 2009 crisis 2014, driven by the surge in small deals The ongoing geopolitical situation and An absence of large privatisations, such as uncertainty surrounding Russia’s economic VTB in H1 2013 (USD3.3bn), saw inbound outlook led the aggregate value of large M&A fall by 64% in H1 2014 to USD2.6bn – deals (>USD500m) to fall by 50% to the USD1bn IPO of supermarket chain USD17.4bn Lenta being the largest inbound deal And while the number of mid-size deals Whereas outbound M&A increased by 58% (>USD250m

Energy and natural resources sectors continued to dominate Russian M&A, with 48 deals announced worth a combined USD14.1bn in H1 2014 The USD2.4bn JV between Alliance Oil and Independent Petroleum Co. was the largest deal in the period While power generation company Volzhskaya TGK was the biggest spender consolidating four utility companies in deals worth a total of USD4bn

With the exception of small domestic deals, we expect Russian M&A to remain depressed during the second half of 2014, with little expectation of large inbound transactions returning to the market

M&A value at lowest level in 5 years but small deal activity at all time high

Value (USDbn) and number of deals H1 2010 to H1 2014*

Russian Grids acquisition of Russian M&A declined by FGCoUES (USD 14.4bn)(1) 258 USD15.7bn (36%) in H1 2014 14,4 >USD10bn 179 185 to USD27.8bn; the lowest Deal value 151 No. of deals level since the 2009 crisis 128 121 123 108 No. of deals with value 79 68 Even excluding Russian 28.4 33.9 36.9 29.1 27.8 Grids USD14.4bn acquisition H1 2010 H1 2010 H1 2010 H1 2010 H1 2010 of Federal Grid Company in th (1) Russian Grids acquisition of Federal Grid Company of Unified Energy System (FGCoUES) was the 9 largest deal globally in 2013 April 2013, deal value was Number of deals by deal size (USD) Deal value by deal size (USD) down by 4% on last year H1 2014 vs. H1 2013 H1 2014 vs. H1 2013 Despite this, the number of 59% of deals >USD500m Combined value of deals >USD500m were in the ENR sectors falls by 50% to USD17.4bn deals announced more than doubled to an all time high of H1 2014 H1 2014 16 1 2.4 0.2 258 – deal values were made 33 3.5 8 4 1 6 1.3 2.5 9 2.7 public for 72% of deals, up <10m 29 14.4 >10m<100m 4.3 from 64% last year 8 H1 2013 >100m<250m H1 2013 10.1 35 >250m<500m With fewer large deals 16 >500m<2bn 2.4 >2bn<10bn 12.5 98 15.0 (>USD2bn) the average deal >10bn value fell by 73% in H1 2014,

37% of deals

Largest transactions in H1 2014 The 10 largest deals Target Sector Acquirer Stake USDm accounted for 47% of total 1 AO/IPC JV O&G Alliance Group/IPC 60:40JV 2,400 value (H1 2013: 79%), 2 TGK-9 OAO P&U Volzhskaya TGK 100% 1,844 with the largest being the 3 Yugragazpererabotka O&G SIBUR Holding 49% 1,600 USD2.4bn JV between 4 Altimo C&M LetterOne Group 14.2% 1,150 5 Altynalmas Gold Ltd M&M Polymetal International 100% 1,119 Alliance Oil and Independent 6 Pirelli & C. S.p.A. Auto Rosneft Oil Company 13.1% 1,041 Petroleum Co. 7 Burneftegaz O&G Bashneft ANK 100% 1,000 8 SeverEnergia O&G Gazprom Neft 9.8% 980 9 Lenta LLC CM IPO investors 22.6% 952 10 TGK-5 OAO P&U Volzhskaya TGK 100% 869 Top 10 deals in period 12,955 As % of total deals in H1 2014 47% © 2014 ZAO KPMG. All rights reserved. * All data presented in the survey is KPMG analysis. Russian M&A H1 2014 | 5

ENR dominates but with high activity in RE&C, I&T, B&I and C&M sectors

Deal value (USDbn) by sector H1 2014 vs. H1 2013 The ENR sectors1 continued 15.0 Includes USD3.3bn Includes USD14.4bn Russian H1 2013 to dominate Russian M&A with privatisation of VTB stake Grids deal H1 2014 48 deals in H1 2014, totalling 9.3 USD14.1bn, equal to 51% of 7.5 4.9 4.8 total deal value 3.6 3.7 2.9 2.7 2.2 2.0 1.8 1.2 1.4 1.6 1.3 1.3 1.3 0.6 1.1 1.1 Real Estate & Construction saw - 0.1 0.1 the greatest level of activity Auto B&I C&M CM H&P I&T M&M O&G P&U RE&C T&I Other outside ENR with 47 deals worth USD2.7bn, driven by investment Number of deals by sector H1 2014 vs. H1 2013 in hotels, retail and office space 17 Deal value (H1 2013) Despite deal activity in the Deal value No. of deals Innovation & Technology sector 9 9 No. of deals (H1 2013) quadrupling in H1 2014, driven 4 4 4 by acquisitions of technology 2 and internet companies, the 1 014 592 12 589 - 46 48 25 value of deals fell by 9% Agribusiness Chemicals Sport & Leisure Other

Corporate and retail banking Monthly and LTM deal value (USDbn) 2010 to H1 2014 deals drove the Banking & 142.7 Insurance sector, where there 136.1 were a total of 29 deals worth 104.1 107.5 98.7 USD1.4bn; the largest being Alfa 91.9 75.8 Group’s USD304m acquisition of 72.8 86.7 80.1 Bank of Cyprus Ex. Rosneft/TNK-BP 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Jul Jul Jul Jul Jan Jan Jan Jan Jan Mar Mar Mar Mar Mar Sep Sep Sep Sep Nov Nov Nov Nov May May May May May

Number of deals by sector H1 2014 vs. H1 2013

H1 2014 8 34 29 15 2 10 Automotive (Auto) Metals & Mining (M&M) 22 6 21 Banking & Insurance (B&I) Oil & Gas (O&G) 13 9 Communications & Media (C&M) Power & Utilities (P&U) 4 10 H1 2013 Consumer Markets (CM) Real Estate & Construction (RE&C) 8 8 1 Healthcare & Pharmaceuticals (H&P) Transport & Infrastructure (T&I) Energy & Natural Resources, comprising the Metals & 47 23 12 Mining (M&M), Oil & Gas (O&G) and, Power & Utilities Innovation & Technology (I&T) Other (P&U) sectors. 7 14 31 13 24 11

Domestic M&A value falls but with increased activity driven by small deals

Domestic deal value (USDm) H1 2010 to H1 2014

33.9 While the value of domestic M&A declined by USD12.6bn 25.4 (37%) in H1 2014, due mainly 22.3 22.4 21.3 to the absence of larger

19.5 deals such Russian Grids, Excluding Russian Grids the share of domestic deals increased from 60% to 77% driven by small deals

H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 The absence of large privatisations, such as the Deal value (USDbn) by type Number of deals by type H1 2014 vs. H1 2013 H1 2014 vs. H1 2013 VTB in H1 2013 (USD3.3bn), saw the value of inbound H1 2014 H1 2014 M&A fall by almost two thirds 3.8 35 2.4 22 despite stable deal volumes 7.2 2.6 Domestic 27 Inbound Conversely, outbound M&A H1 2013 Outbound H1 2013 27 74 was up by 58% to USD3.8bn 33.9 21.3 196 following USD1bn deals by both Polymetal (Altynalmas Gold) and Rosneft (Pirelli)

Top 10 participants in H1 2014 Volzhskaya was the biggest As bidder As seller Total spender, consolidating four Company USDm No. USDm No. USDm No. utility generating companies 1 Volzhskaya TGK 3,971 4 - - 3,971 4 in deals worth USD4bn in 2 Rosneft 1,983 6 1,600 1 3,583 7 H1 2014, while VTB was the 3 Gazprom 1,915 9 1,278 3 3,193 12 4 SIBUR 1,600 1 799 2 2,399 3 most active player, being 5 VTB 461 7 1,664 7 2,125 14 involved in a total of 14 deals 6 Bashneft 1,000 2 - - 1,000 2 7 Millhouse Capital 710 3 - - 710 3 8 FASPM(1) - - 692 10 692 10 9 Sberbank 300 6 28 1 329 7 10 AFK Sistema 321 6 - - 321 6 Top 10 participants 12,261 44 6,061 24 18,323 68 As % of total deals in H1 2014 68% 26%

Inbound M&A falls 64% as foreign IPO market dries up for Russian listings

Inbound value (USDbn) and number of deals H1 2010 to H1 2014 Although the level of inbound

M&A fell sharply in H1 2014 Includes USD3.3bn VTB IPO to USD2.6bn, its lowest level 36 in fours years, the number of 34 deals remained stable 27 27

20 20 20 Two deals accounted for 60% 18 19 inbound M&A in H1 2014:

7 USD1bn IPO of Lenta in 1.3 7.1 5 7.2 2.6 Moscow and London; and H1 2010 H1 2011 H1 2012 H1 2013 H1 2014

USD0.6bn acquisition of Deal value No. of deals Veropharm by US based No. of deals with value Abbott laboratories

In the wake of deteriorating Inbound value (USDm) and number of deals by sector H1 2014 economic conditions and Lenta IPO fresh sanctions, the prospect H1 2014 95 158 265 for further foreign IPO’s of 255 4 Banking & Insurance 8 Consumer Markets 1 Healthcare & Pharmaceuticals Russian companies is remote 1 Innovation & Technology in the second half of the year 290 H1 2013 952 Oil & Gas Real Estate & Construction 7 4 Other With 16 deals in H1 2014, 2 Veropharm 631 Europe remained the most acquisition active inbound investor. The long awaited influx of capital from Asia-Pacific has yet to Inbound value (USDm) and number of deals by region H1 2014 materialise though, with only three deals worth USD93m H1 2014 92 2 3 4 785 1,039 Asia-Pacific Europe Lenta and National Bank 2 H1 2013 MEA Trust IPO’s North America Other 18 16

713 Includes USD0.6bn Veropharm acquisition

Outbound M&A rebounds by 58% but outlook remains uncertain

Outbound value (USDbn) and number of deals H1 2010 to H1 2014 Outbound M&A increased by 58% in H1 2014 to USD3.8bn 35

30 driven by three deals: 26 23 21 21 22 Polymetal’s USD1.1bn 18 17 acquisition of Kazakhstan 9 based Altynalmas Gold;

4.9 4.4 6.5 2.4 3.8 Rosneft’s USD1bn H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 acquisition of a 13.1% Deal value stake in Italian tyre No. of deals No. of deals with value manufacturer Pirelli; and

Renova’s USD548m Outbound value (USDm) and number of deals by sector H1 2014 acquisition of Italy’s Octo

Rosneft acquisition of 13.1% of Pirelli Telematics

H1 2014 89 372 Outbound M&A was Automotive 1 Includes 205 1,041 Banking & Insurance concentrated on European 9 6 Altynalmas Consumer Markets Gold countries (46% of value and acquisition 1 Healthcare & Pharmaceuticals H1 2013 2 Innovation & Technology 51% of volume), and CIS 3 Metals & Mining 1,130 5 413 Oil & Gas member states (38% of value 5 Real Estate & Construction 3 Other and 26% of volume). The 585 impact of recently announced Includes Octo Telematics deals sanctions on outbound M&A in H2 2014 remains uncertain

Outbound value (USDm) and number of deals by region H1 2014

H1 2014 222 35 358 123 1 2 11 4 4 Asia-Pacific CEE 1 Central America H1 2013 CIS 1,623 Europe 14 9 MEA 1,463 South America

PE activity up by 79% but deal value down 64% due to lack of large deals

PE(1) deal value (USDbn) and number of deals H1 2010 to H1 2014 Although deal activity Includes two deals involving Onexim (2) Deal value increased, the Russian totalling USD6.9bn 34 No. of deals 29 No. of deals with value Private Equity market fell by 25 21 64% in H1 2014 to USD3.4bn 20 19 16 13 13 However, Onexim 9 1.9 5.7 4.3 9.4 3.4 participated in two deals H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 worth USD6.9bn in H1 2013 and with the IPO of PE deal type value (USDm) and number PE deal by sector value (USDm) and supermarket chain Lenta the of deals H1 2014 number of deals H1 2014 only USD1bn PE transaction H1 2014 Sale of Russian Fitness Group to Includes Includes in H1 2014, the average deal Goldman Sachs and VTB Capital Sberbank’s 308 16180 sale of a acquisition 7% stake in 1,102 of a 19.9% Rosbank by size fell by 81% to USD138m H1 2014 6 5 39 stake in Interros for VPC(4) for 730 USD116m 1 Includes 4 USD186m 2 6 Despite a number funds USD1bn 1,128 H1 2013 Includes Lenta IPO Includes 3 USD1bn approaching the end of USD700m 1 2 Lenta IPO H1 2013 acquisition 202 2 their investment term, exits of a LPG 12 7 terminal at 143 Acquisition 2,271 Ust-Luga 700 of 70% stake remained low given uncertain 29 by RDIF in Biocad by economic conditions; Interros consortium Banking & Insurance Millhouse Communications & Media Capital & Consumer Markets Pharm- sale of a 7% stake in Rosbank Acquisition Healthcare & Pharmaceuticals standart Exit Innovation & Technology was the second largest exit Secondary Oil & Gas Real Estate & Construction Transport & Infrastructure Together with Pharmstandart Other Millhouse acquired a 70% Top 5 PE participants in H1 2014 stake in Biocad for USD700m As bidder As seller Total which together with the Company USDm No. USDm No. USDm No. acquisition of an LPG terminal 1 VTB Capital(3) 39 3 952 1 991 4 at Ust-Luga by an RDIF led 2 Millhouse Capital 710 3 - - 710 3 consortium, was the joint 3 RDIF led consortium 700 1 - - 700 1 4 AFK Sistema 321 6 - - 321 6 second largest PE deal 5 Sberbank Investments 186 1 - - 186 1 Top 5 participants 1,956 14 952 1 2,908 15 As % of PE deals in H1 2014 85% 44%

(1) Private Equity asset class comprising private equity, venture capital, hedge funds, private investment funds, private and public diversified investment companies (2) In H1 2013, Onexim Group, a private investment fund, acquired a 37.8% stake in Polyus Gold International for USD3.6bn and was part of the investor group which participated in the USD3.3bn privatisation of 13.8% stake in VTB Bank (3) Includes the IPO of Lenta by TPG Capital, European Bank for Reconstruction and Development, and VTB Capital (4) Verkhnekamsk Potash Company

Sources Reconciliation of data

Data included in this document was Source EURm USDm No. of deals aggregated from information contained (1) in the Mergermarket and DealWatch Mergermarket Intelligence Alert 12,064 16,560 110 M&A deals databases, together with Deals outside Mergermarket criteria(2) 1,157 43 proprietary research of deals valued over USD5m where the dominant Outbound deals from Mergermarket 3,439 32 geography of the target (inbound), database acquirer (outbound) or both (domestic) DealWatch data included 4,091 66 is Russia KPMG proprietary research(3) 2,582 7 Data from the Mergermarket and DealWatch M&A deals databases is as Russian M&A H1 2014 28,829 258 at 1st July 2014 Deals with undisclosed transaction (1) As published by Mergermarket on 07-01-2014 (2) Mergermarket data is based on transactions over USD5m, including deals with undisclosed values where the target’s turnover values are included where the target’s exceeds USD10m and deals where the stake acquired is less 30% provided the deal value is greater than USD100m. Such deals which are included in the Mergermarket M&A deals database by classified as ‘out-side of Mergermarket inclusion turnover exceeds USD10m based on criteria’ have been included where the transaction value exceeds USD5m Mergermarket data (3) Research of deals in the Real Estate & Construction sector, exclusion of deals announced in previous periods and inclusion of deal values for Mergermarket deals with no value based on publicly available information Deals are allocated to the following KPMG industry sectors: Agribusiness Automotive Banking & Insurance Chemicals Communications & Media Consumer Markets Healthcare & Pharmaceuticals Innovations & Technology Metals & Mining Oil & Gas Power & Utilities Real Estate & Construction Transport & Infrastructure Other Deals are allocated based on the dominant industry of the target, which may involve using judgement and as such, the allocation may therefore be subjective KPMG has not extensively verified all data and cannot be held responsible for its accuracy or completeness. Analysis of different databases (see opposite) may yield deviating results from those presented in this document

Sean Tiernan Head of Advisory Partner T: +7 (495) 937 4477 E: [email protected]

Lydia Petrashova Head of Transaction Services Partner T: +7 (495) 937 4477 E: [email protected]

Peter Latos Head of Private Equity Director T: +7 (495) 937 4477 E: [email protected]

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