Russian M&A review 2017

40 Pages·2017·5.18 MB·English

Russian
M&A
review
2017
March 2018
KPMG in Russia and the CIS
kpmg.ru
2 Russian M&A review 2017
Contents
page 3 page 6 page 10 page 13 page 28 page 29
KEY M&A
2017 OUTLOOK DRIVERS
OVERVIEW IN REVIEW FOR 2018 IN 2017 METHODOLOGY APPENDICES
— Oil and gas — M acro trends and
medium-term
— F inancing –
forecasts
sanctions-related
implications — A ppetite and
capacity for M&A
— D ebt sales market
— C ross-border M&A
highlights
— S ector highlights
© 2018 KPMG. All rights reserved.
Russian M&A review 2017 3
Overview
Although deal activity increased by
13% in 2017, the value of Russian M&A Deal
was 12% lower than the previous
activity 13%
year, at USD66.9 billion, mainly due
to an absence of larger deals. This
was in particular refected in the oil
and gas sector, which in 2016 was
characterised by three large deals
with a combined value exceeding
USD28 billion.
The good news is that investors have adjusted to the
realities of sanctions and lower oil prices, and sought
opportunities brought by both the economic recovery
and governmental efforts to create a new industrial
strategy.
2017 saw a signifcant rise in the
number and value of deals outside the Deal
more traditional extractive industries value 37%
and utility sectors, which have
historically driven Russian M&A. Oil and gas sector is excluded
If the oil and gas sector is excluded,
then the value of deals rose by 37%,
from USD35.5 billion in 2016 to
USD48.5 billion in 2017.
USD48.5bln
USD35.5bln
2016 2017
© 2018 KPMG. All rights reserved.
4 Russian M&A review 2017
Russian M&A (2011–2017)
621
We believe that the outlook
546
for 2018 is for moderate
growth, in both the number 56.0 14.4 470 482
and aggregate value of
deals, compared to 2017.
334 333
302 11.3
100.9
79.5 79.0
64.8 66.9
70.0
52.0
2011 2012 2013 2014 2015 2016 2017
Deal value (excl. mega deals), Mega deals (>USD10 bn), Number of deals
USDbn USDbn
Source: KPMG analysis
Progress in terms of economic compounded following the
recovery, although positive, has publication of the so-called Kremlin
been slower than that targeted report . The economy has largely
by the government. One of adapted to the 2014 sanctions, and
the principal reasons for this investors have become used to
is continuing uncertainty over working within the legal constraints
sanctions, which was further they impose.
However, two key factors could infuence Russian
M&A during the year ahead: how the US August
2017 sanctions are further enforced, and the Russian
presidential election cycle.
1
A report listing offcials and billionaires from Russia’s ruling elite that could be targeted through
further sanctions. It was compiled by the US Treasury Department, mandated by the US
Congress under the Countering America’s Adversaries Through Sanctions Act, and made public
on 30 January 2018.
© 2018 KPMG. All rights reserved.
Russian M&A review 2017 5
Russian M&A largest deals in 2017
Target Sector Acquirer Vendor
acquire%d UVSaDlume
CEFC China Energy Glencore, Qatar
1 Rosneft Oil Company* Oil & Gas 14.2% 9,254
Company Limited Investment Authority
Otkritie Financial Banking &
2 Central Bank of Russia Private shareholders 99.9% 7,720
Corporation Bank** Insurance
Joint venture of ride-
Innovations & Yandex, N.V.; Uber Yandex, N.V.; Uber 59.3%/
3 hailing businesses of 3,800
Technology Technologies Technologies 36.6%
Yandex and Uber
The Nature's Bounty
Holland & Barrett LetterOne Group
4 Consumer Markets Co; The Carlyle Group 100.0% 2,250
International (Mikhail Fridman)
LP
5 Yuzhno-Russkoye feld Oil & Gas OMV AG Uniper SE 25.0% 2,040
6 SIBUR Holding Chemicals Leonid Mikhelson Kirill Shamalov 14.3% 1,910
Eurasia Drilling
7 Oil & Gas Schlumberger Limited Private shareholders 51.0% 1,900
Company Limited
Qatar Investment
Authority; AnAn
8 En+ Group Metals & Mining Oleg Deripaska 18.8% 1,500
Group; Russian Direct
Investment Fund
Retail portfolio of Real Estate &
9 Fort Group Immofnanz Group 100.0% 1,051
Immofnanz in Moscow Construction
Communications
10 MegaFon Gazprombank Telia Company AB 19.0% 1,046
& Media
largest as a % of total
deals 48.5% transactions
10 in period USD32.47bln in 2017
*The completion of the deal was postponed due to the CEFC’s cash constraints.
**On 11 December 2017, the Central Bank of Russia acquired 99.9% of the ordinary shares of Otkritie Financial Corporation Bank as part of its
bankruptcy protection measures.
© 2018 KPMG. All rights reserved.
6 Russian M&A review 2017
2017 in review
As previously mentioned, part of GDP Last year also saw the consumer
the reason for the increased sectors beginning to show signs of
optimism and activity is the recovery after experiencing a slump
economy continuing to show strong in the previous two years.
resilience to both the sanctions and 1.8%
lower oil revenues.
The large drop in infation
The economy continues to beneft
(which is estimated to
from increased competitiveness
as a result of the weak rouble and have ended the year
According to Macro- a steady shift in consumption close to 2.5% year-on-
towards domestically produced year, compared to 5.4%
Advisory estimates, GDP goods. The agriculture sector
in 2016) in combination
expanded by 1.8% in 2017, has been the big winner from
with a pick-up in wage
thus ending the two-year the weaker rouble and Russia’s
recession which saw GDP counter-sanctions, which bans the growth helped boost
contract by 2.8% and 0.2% import of many food types from consumer spending and
the EU and US, and was again confdence.
in 2015 and 2016, one of the main drivers of the
respectively. recovery in 2017. Last year Russia
was the world’s largest exporter of This, together with a steady
wheat and sugar, and the country decrease in debt servicing costs
recorded signifcant increases in following the CBR cutting its
the production and export of other benchmark interest rate and the high
agriculture and food products. street banks following suit, saw a
return in demand for higher-priced
durable goods, such as vehicles.
The total number of passenger and
light commercial vehicles sold in
2017 rose 12%, to 1.5 million, the
highest number recorded since 2009
and testament to the improving
economic environment.
© 2018 KPMG. All rights reserved.
Russian M&A review 2017 7
Deal value by sector: 2017 vs. 2016 Deal volume by sector: 2017 vs. 2016
USDbn
Oil & Gas
4.7 43
Banking & Insurance
2.3 100
31
3.3 1.5 5.0
18.4 Real Estate & Construction 86 44
3.2
4.0 2.3 Metals & Mining 44
3.5 77
Innovations & Technology
1.7
63 41
2017 5.2 2016
40.6 Consumer Markets 2017 10 2016
8.8 102
Communications & Media
12 43
55
5.5
9.1 Chemicals
8.3 36
28
1.1 57 48
Agriculture
37
6.9
7.5
Other 71
Note: Further detailed analysis of M&A activity by sector is presented in Appendix 4. Source: KPMG analysis
Investors also responded to the government’s efforts The innovations and technology sector saw one of the
and commitment to a new industrial strategy aimed largest deals of 2017, with the USD3.8 billion merger of
at creating a more diversifed activity base and a Yandex and Uber’s ride-hailing businesses in Russia
broader mix of exports, which traditionally have been and other CIS countries. The deal effectively sees Uber
dominated by the extractive industries. The so-called withdraw from the Russia and CIS market, and follows
localisation programme, in tandem with the improved its 2016 exit from China, where it sold its operations
competitiveness of the economy, have begun to attract to local rival Didi while retaining a minority stake.
investors to a wider range of sectors. Furthermore, recent press reports suggest that Uber
potentially could exit other international markets where
it has so far struggled to achieve a market-leading
position.
Substantial growth was demonstrated
by the communications and media sector
(from 43 deals, worth USD2.3 billion in
2016, to 57, worth USD4.0 billion, last year),
consumer sectors (up from 36, worth
USD3.5 billion, to 71, worth USD5.2 billion)
and the innovations and technology sector
(deal value more than doubled in 2017
compared to 2016).
© 2018 KPMG. All rights reserved.
8 Russian M&A review 2017
Russian M&A deal value by type (2011–2017)
USDbn
Inbound M&A deal value by region (2017 vs. 2016)
11.8
16.3
10.7
12.0 3.3 1.7
18.4
0.1
1.4
4.6 1.9 CIS
5.4
0.0 Europe
7.9 North
America
13.6 13.8 21.5 0.0
107.3 22.5 MEA
15.8 92.2 10.9
15.3 6.4 Asia-Pacifc
5.2
5.1
57.3
39.3 39.1 1.2
40.6 36.0
Other
regions
2011 2012 2013 2014 2015 2016 2017
Domestic Outbound Inbound 2016 2017
Source: KPMG analysis
Russian M&A deal volume by type (2011–2017)
Inbound M&A deal volume by region (2017 vs. 2016)
71 40
36
74
111
54 6
65
2
47
48
58 CIS
5
22
0 Europe
73 63 North 4 2
8
71 America
41 476 MEA
48 36
53
347 379 388 6.4 Asia-Pacifc
229
213
178
5
Other
regions
2011 2012 2013 2014 2015 2016 2017
Domestic Outbound Inbound 2016 2017
Source: KPMG analysis
© 2018 KPMG. All rights reserved.
Russian M&A review 2017 9
The government’s geopolitical diversifcation policy continues to result in both
higher inbound investment activity (the number of such deals doubled in 2017 (the
highest level since 2010) compared to 2016), as well as higher inbound investment
infows, particularly from Asian countries, which accounted for over 47% of the
USD22.5 billion of inbound M&A announced in 2017.
While the acquisition of a 14.16% The overall economic recovery led Although the number of Russian
stake in Rosneft from Glencore and to resumed interest from European outbound deals remained on a
Qatar Investment Authority by China and Northern American investors. par with 2016, the value of M&A
Energy Company was a clear driver After a period of inactivity in 2016, fell by two-thirds in 2017, as there
behind this, overall M&A activity US strategic investors returned to were fewer large deals2. The
with Asian investors in terms of Russia, committing USD1.9 billion majority, 52%, of Russian outbound
number of deals more than doubled of investment, driven primarily by investment in 2017 was in European
in 2017 compared to 2016. Schlumberger Limited’s acquisition companies, with the largest deal
of a 51% stake in Eurasia Drilling being the investment business
Company. with Russian capital LetterOne
Group’s USD2.25 billion acquisition
of Holland & Barrett International,
Meanwhile, inbound Europe’s largest health and wellness
USD3.3bln M&A from Europe saw retail chain.
USD1.4bln a more than two-fold
2 On 15 October 2016 Rosneft acquired a 49%
increase, from USD1.4 stake in Indian Essar Oil for USD6.3 billion, and
billion in 2016 to United Capital Partners acquired an effective
stake of 24% (worth USD3.1 billion) via its
2016 2017 USD3.3 billion in 2017. interest in a consortium with the international
commodity trading frm Triafgura.
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10 Russian M&A review 2017
Outlook for 2018
One example in this regard June 2017, which was also refected
It is now clear that the was in the oil sector, which by the number of inbound M&A
2014 sanctions had saw average crude output deals doubling during 2017.
rise by 740,000 barrels per
benefcial effects – for day between August 2014, when
example, they led to the sanctions were imposed on certain However, as mentioned
government and industry activities relating to the exploration earlier, considerable
placing a greater focus or production of oil or gas, and concern still exists
on boosting effciency November 2016, when Russia agreed over how the US will
and improving spending dtoe pala wrticthip OatPeE iCn. a production control enforce the August 2017
discipline. sanctions, with the
Similar examples could be so-called Kremlin
observed across other sectors report (published 30
of the economy. Furthermore, January 2018) failing
Russia was the second-largest
to provide any further
recipient of foreign direct investment
(FDI) in Europe in the 18 months to clarity on the practical
implications of the new
legislation.
Until this issue receives clarifcation
some potential investors, and
particularly US strategic investors,
are likely to further delay deals. One
fear on their part is that there will be
a signifcant ratcheting up of legal
restrictions on activity in Russia. The
issue is expected to be the subject
of political debate in Q1 and Q2 this
year, which may see transactions
delayed until the second half of the
year.
© 2018 KPMG. All rights reserved.