We are pleased to present the third Squire Sanders Global M&A Briefing, produced in association with Mergermarket.
Contents include: Announced outbound M&A activity in H1 2013 declined in volume 40% year-on-year (YoY) to 18 deals, and dropped in value 60% YoY to US$2.1bn (see page 2)
Energy, mining and utilities remains Russia’s standout sector, but with shifts in the global energy power balance, Russian oil firms will look further afield to diversify their portfolios and mitigate risk (see page 2)
Ukraine and the rest of the CEE accounts for more than one third (36%) of all Russian outbound M&A in 2011 through 2013 Russia Outbound M&A (see page 3) Squire Sanders Global M&A Briefing 2013 There is growing interest in financial services, as exemplified by Sberbank’s acquisition of CEE- Over the past 20 years the Russian economy has developed into a global powerhouse, based Volksbank International, as and currently ranks as the 10th biggest worldwide. Although GDP growth rates may well as Gazprombank establishing undershoot targets in 2013, the economy has nonetheless posted gains in a time of a joint venture with Italian bank global contraction. Intesa Sanpaolothe (see page 4) Russia’s prominence on the world stage Russian Outbound M&A Trends has, in large part, been underpinned by its vast natural resources, especially 70 20000 from the early 2000s onward, when 60 global commodity prices spiked for a 15000 sustained period. That said, the economy 50
is becoming increasingly multi-faceted as Value of deals US$m it begins to mature. The government has, 40 for instance, made a concerted effort 10000 to foster industries such as technology. 30
With the ongoing establishment of the Number of deals Published by: 20 Skolkovo Innovation Centre, the Russian 5000
government hopes to lay the groundwork 10 for a Russian Silicon Valley.
0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 This growing dynamism is beginning Squire Sanders is one of the to feed into M&A. Generally, domestic world’s leading legal practices, with activity has sustained Russian M&A, Number of deals Value of deals US$m 1,300 lawyers in 39 offices located in with state-owned enterprises and 19 countries. We have more than publicly listed companies acting as serial 350 transactional lawyers globally, who acquirers. Although Russian outbound provide expert multijurisdictional and local M&A legal advisory services. SQUIRE SANDERS GLOBAL M&A BRIEFING – October 2013 Russia Outbound M&A
M&A represents a relatively small proportion Russian Outbound M&A Deal Size Splits, Yearly of overall dealmaking in the country, it is an 65 increasingly important component of the Russian 7 60 11 M&A landscape. Excluding the frenetic levels 55 3 4 6 reached in 2007 and 2008, Russian outbound M&A 50 8 5 5 9 5 has exhibited a generally positive trend since the 45 7 40 4 6 early 2000s, with dealmakers from a wider spread 3 7 6 21 5 35 4 1 2 of industries looking farther afield to find growth. 2 21 4 30 21 11 10 10 8 Number of deals 25 12 8 In terms of announced activity in H1 2013, 3 5 3 20 13 1 10 4 13 outbound M&A declined in volume 40% 15 7 3 18 10 1 17 17 year-on-year (YoY) to 18 deals, and dropped 14 13 11 11 11 8 in value 60% YoY to US$2.1bn. While these 5 0 figures may seem disappointing, it is worth 2005 2006 2007 2008 2009 2010 2011 2012 2013 taking stock of the more positive trends that have developed over the past decade. Key for above graph: Not disclosed
Russian Outbound M&A Deal Volume, Russian Outbound M&A Deal Value, Split by Target Sector Split by Target Sector
Volume, 2011-2013 YTD 1% 1% Value, 2011-2013 YTD Energy, Mining & Utilities
3% Volume, 2005-2010 2% Value, 2005-2010 TMT 3% 4% 4% Financial Services 2% 5% 3%2% 24% Industrials & Chemicals 5% 2% 3% 16% 2% Transportation 5% 4% 29% 1% 1% 1% 38% Pharma, Medical & Biotech
5% 7% 39% Consumer 1% 34% Construction Leisure 7% 9% 1% Business Services 18% 16% 20% Agriculture 19% 17% 11% Real Estate
13% 21%
SQUIRE SANDERS GLOBAL M&A BRIEFING – October 2013 Russia Outbound M&A
Activity in the sector also looks likely to remain Regional Perspectives Elsewhere, there is notable activity based strong due to the prevalence of troubled energy, around broader market trends. For instance, utilities and resources firms throughout Europe. Russian outbound M&A is still a largely localized in 2012 and 2013, there have been several Many have struggled under the weight of the affair. The linguistic and cultural ties between instances of high-value industrials and chemicals economic downturn. A number of the past Russia and the CEE are hard to ignore, particularly transactions in northern Europe. Chris Rose, few years’ major deals have had continental among Commonwealth of Independent States partner at Squire Sanders, comments: “Typically, European sellers looking to free up much- (CIS) countries. Russians, for instance, refer to the these transactions have targets that are highly needed cash. CIS countries as “near Russia”. Combining Ukraine specialized, and that add value to Russian buyers’ with the rest of the CEE, the region is the target of portfolios.” In one notable example, the Renova For instance, in one of the biggest outbound more than one third (36%) of all Russian outbound Group, a Russian conglomerate with interests in deals of 2013 to date, state-owned oil giant M&A in 2011 through 2013. the industrials and chemicals space, announced Rosneft Oil Company announced plans to plans to purchase a 60% stake in beleaguered purchase a 21% stake in oil refining company But when examining deal value, the CEE and Switzerland-based Schmolz + Bickenbach, which Saras from the Moretti family. The deal was the CIS’s predominant position is less evident. specializes in steel long products. The deal puts valued at US$357m. The deal follows a year of Instead, activity in the region by value was a to rest a protracted struggle amongst the family weak earnings for Saras, as the refining industry less substantial 19% of overall activity in 2011 of Schmolz + Bickenbach’s founder, who were across Europe struggled, due to high oil prices through 2013 YTD. The regions that saw larger debating the possibility of a restructuring. and muted demand. shares of value did so because of singular, blockbuster transactions. For instance, the Outlook The telecommunications, media and technology Benelux states accounted for 29% of deal value (TMT) sector has also seen notable activity in 2011 through 2013 YTD, but during that period, Russia has historically conducted a significant over the past few years, and has grown in the only deal with a disclosed deal value was proportion of its outbound M&A in CIS countries, significance. Although TMT’s market share by Altimo’s takeover of VimpelCom. such as Ukraine and Kazakhstan. The region’s volume has dropped 6 percentage points (pp) political, linguistic and cultural ties are at the to 13% in 2011 through 2013 YTD, its share The same is the case in South Eastern Europe root of these long-standing, close relationships. by value has grown 4 pp to 21% of overall (SEE), which represented 16% of volume in 2011 Although a significant amount of outbound M&A. At the root of this massive jump was through 2013 YTD, up from 6% in the period of dealmaking still takes place within the CEE, it is telecommunications investment firm Altimo’s 2005 through 2010. The responsible acquisition now complemented by increased dealmaking into August 2012 US$3.5bn acquisition of a minority was Russia-based Sberbank’s acquisition of CEE countries like Czech Republic, Bulgaria and share in Netherlands-based VimpelCom, one of Denizbank, a Turkey-based commercial bank, Poland that had previously been less receptive to the world’s largest mobile phone operators. The for US$3.8bn. The deal came as profits in the Russian investment. transaction saw Altimo increase its ownership Turkish financial sector surged. Sberbank had stake to 48%. This deal put to rest a decade- been looking for opportunities with which to A sizeable portion of this activity is taking place long competition between Altimo and Norway’s expand its international footprint, and acquiring in the manufacturing arena, and can prove key Telenor for control of Vimpelcom. Norway’s Denizbank presented a rare opportunity to do so strategically to Russian buyers. David Wack, Telenor still owns 42%. in a healthy economy. partner at Squire Sanders, explains: “Many
Russian Outbound M&A Deal Volume, Russian Outbound M&A Deal Value, Split by Target Region Split by Target Region Benelux Volume, 2011-2013 YTD 1% Value, 2011-2013 YTD South Eastern Europe (SEE) Value, 2005-2010 2% Volume, 2005-2010 CEE & CIS (including Central 2%2% 4% 3% 4% Asia and Ukraine) 3% 4% 2% 3% 4% 2% 5% North America 2% 3% 4% 6% 29% 3% 3% 8% Austria & Switzerland 4% 1% 4% 1% 1% 4% 36% APAC 5% 7% Italy 41% 6% 5% 7% 5% France 30% 5% UK & Ireland 6% 6% Latin America 2% 9% 7% Germany 6% 4% 11% 27% 16% Nordics 9% MENA 8% 19% 8% Spain Sub-Saharan Africa
SQUIRE SANDERS GLOBAL M&A BRIEFING – October 2013 Russia Outbound M&A
Top Deals, 2012 to 2013 YTD
Announced Deal Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Deal Value Date Status Country Country Country USD(m) 08/06/2012 C Denizbank A.S. Financial Services Turkey Sberbank CIB Russia Dexia SA Belgium 3760 15/08/2012 C VimpelCom Ltd (14.8% Stake) Telecommunications: Netherlands Altimo Russia Orascom TMT Investments S.a r.l. Luxembourg 3600 Carriers 14/01/2013 P Uranium One Inc (48.6% Stake) Mining Canada ARMZ Uranium Holding Co Russia 1525
05/11/2012 C GEFCO SA (75% Stake) Transportation France Russian Railways OAO Russia PSA Peugeot-Citroen SA France 1022
12/07/2013 P Schmolz + Bickenbach AG Industrial Products Switzerland Renova Group of Companies Russia 934 (59.54% Stake) & Services 19/07/2012 C Bulgarian Telecommunications Telecommunications: Bulgaria VTB Capital ZAO; Corporate Russia 896 Company (93.99% Stake) Carriers Commercial Bank AD
13/08/2013 C Bever Pharmaceutical Pte Ltd Medical: Singapore Pharmstandart OAO Russia Bristley Enterprises Ltd Russia 590 Pharmaceuticals 31/01/2012 C ISAB S.r.l. (20% Stake) Energy Italy Lukoil OAO Russia ERG S.p.A. Italy 523 15/04/2013 P Saras S.p.A. (20.99% Stake) Energy Italy Rosneft Oil Company OAO Russia Massimo Moratti (Private Italy 357 Investor); Gianmarco Moratti; Angelo Moratti S.a.p.a.
C = Complete; P = Pending of these manufacturing assets were actually Turning to the energy and mining sector, America the political environment is generally built during the Soviet era and are now being Russian firms are taking an increased interest less risky, although the political leadership still renovated and upgraded to provide Russian firms in Africa and South America “Russia had has a big bearing on the attractiveness of an with access to the EU.” significant ties to Africa during the Soviet investment. In these markets there is generally era and this experience is being brought back good geological research, but competition is Russian outbound activity is not limited to Eastern into use, with firms looking closely at both oil high, with these assets attracting interest from Europe. There is also increased appetite for and gold,” Ivan Trifonov, managing partner at a range of different investors.” developed market buys. Here, there is demand Squire Sanders’ Moscow office, notes. “Among in the technology and communication sectors, Russian oil companies, there is a feeling that The energy sector has also seen a growing focus with Russian firms having a mandate to bring they are now too large to remain focused on on Asia, particularly China, with deals in this region technologies back to Russia to help diversify the their own region. International expansion generally based on the pursuit of new customers. economy. While this process is still in its infancy, is supported by the political objective of Patrick Brooks, partner at Squire Sanders’ there have been a number of acquisitions, in both increasing Russia’s global influence. In gold Moscow office, states, “Moves into Asia have Western Europe and the US – a country which has firms are looking for opportunities that are been prompted by the energy revolution, resulting seen little interest from Russian acquirers in any easier to mine in comparison to the remaining from the development of alternative extraction other sector. There is also a growing interest in resources in Russia, which require huge measures such as fracking. These advances mean financial services, as exemplified by Gazprombank investment to tap economically.” that the steady cash flow from Europe is no longer establishing a joint venture with Italian bank assured as Europe is building LNG terminals and Intesa Sanpaolo. The new venture will invest in Sergey Treshchev, partner at Squire Sanders, importing more gas from the US. While deals in Russian and Italian businesses looking to grow elaborates: “The choice of investment depends Asia are currently few and far between, there is a internationally, and received backing from both on the resources of the local market as well huge amount of talk. In the future we anticipate a countries’ governments. as the stability of the political regime. In Latin significant shift eastwards in this space.”
C ontact us David Wack Sergey A. Treshchev Partner, London Partner, Moscow T +44 20 7655 1773 T +7 495 258 5250 Disclaimer [email protected] [email protected] This publication contains general information and is not intended to be comprehensive nor to provide Christopher Rose Patrick Brooks financial, investment, legal, tax or other professional advice or services. This publication is not a Partner, London Partner, Moscow substitute for such professional advice or services, and it should not be acted on or relied upon or T +44 20 7655 1790 T +7 495 363 1670 used as a basis for any investment or other decision or action that may affect you or your business. [email protected] [email protected] Before taking any such decision, you should consult a suitability qualified professional adviser. Whilst reasonable effort has been made to ensure the accuracy of the information contained in this Ivan A. Trifonov Anton Rogoza publication, this cannot be guaranteed and neither Mergermarket nor any of its subsidiaries or any Partner, Moscow Partner, Moscow affiliate thereof or other related entity shall have any liability to any person or entity which relies on T +7 495 258 5250 +7 495 258 5282 the information contained in this publication, including incidental or consequential damages arising [email protected] [email protected] from errors or omissions. Any such reliance is solely at the user’s risk.
SQUIRE SANDERS GLOBAL M&A BRIEFING – October 2013