- 89% of Russian respondents view the global economy as improving
- 57% see signs of improvement in the local economy
- 67% view cost reduction and operational efficiency as priority
- 81% expect Russian M&A market to remain the same
- 84% anticipate valuation levels in the next 12 months will not decrease
All respondents anticipate the conditions in the global M&A market to remain stable. However, Russian companies intend to change their M&A deal strategy. In April 2015, 66% of Russian respondents said they are planning larger deals. This is in striking contrast to 2014 when Russian M&A market was very much the opposite of the global market, which saw volumes reach new heights.
The majority of both Russian and global respondents intend to acquire assets to diversify in light of the volatile economy. Nevertheless, the buying of smaller assets that are easily integrated to the existing business structures is still a focus for local executives.
The study finds that investment opportunities for Russian companies have increased, according to 74% of the surveyed executives, who are planning acquisitions in the next 12 months.
However, Russian companies are still cautious in executing deals – with thorough due diligence of the target – as well as keeping a close eye on cost efficiency and growth targets.
The latest uptick in M&A appetite among Russian respondents indicates expectations of a gradual improvement in local market, whose volume makes up slightly more than 1% of the global total.
Aleksey Ivanov, EY’s Lead for Transaction Advisory Services for CIS, says: “We are yet to see a notable activity jump in the market. The vast majority of respondents (81%) do not anticipate major changes in the short term with the quality of assets and the probability of executing deals are yet to improve”.
Corporate strategy, concerns and sectors in vogue
The amount of respondents – locally and globally – for whom improving operational efficiencies and cost cutting is key to their growth strategy has increased in the last year by 17% and 31%, respectively. And only 19% of Russian respondents (lowest percentage finding since the study began in 2009) and 31% of global respondents are ready to invest in further development of their business.
Unlike global respondents, Russian executives note only a slight difference in price valuations between buyers and sellers. Buyers are more confident about the price of their new assets in the long term. And sellers do not aim or have no ability to hold on to assets in hope to sell them at a higher price in the future.
Just as six months ago, geopolitical uncertainty in Eastern Europe and the Middle East remain a main concern for the world’s C-suite. Notable volatility in commodity prices and fluctuations in currency rates amid political and economic instability remain a major obstacle for businesses in the short term.
Traditionally for Russia, financial services (57%) remain the most attractive sector for investment. Hospitality and entertainment (56%), consumer products and retail (50%), and diversified industrials (36%) are also among top sectors for Russian respondents. Globally, however, technology companies remain the most sought-after with 67% of the surveyed intending to pursue acquisitions in the sector.
Half of Russian respondents plan to invest in the neighboring countries. Further afield, the United Kingdom, the United States, South Africa and the Netherlands are the most attractive foreign markets for Russian companies. Globally, the US, China, the UK, Germany and Australia are the Top 5 investment destinations.
Aleksey Ivanov says: “Companies are changing their growth paths as they adapt to new realities. As a result, improving operational efficiencies, cost cutting and expanding to new markets and innovative development are becoming far more important. In the last half year, the differences between global megatrends and trends in the Russian market have narrowed. For instance, the percentage of Russian companies who plan to acquire businesses moved closer to the global figures (49% in Russia and 56% worldwide) and the latest figures indicate a two-fold growth. Increased activity in the middle market, the amount of investments and no major differences between buyers’ and sellers’ price expectations are slated to become catalysts for the renaissance of the Russian M&A market”.
About EY’s Capital Confidence Barometer
EY’s Capital Confidence Barometer is a biannual survey of more than 1,600 senior executives from large companies around the world and across industry sectors. This is the 12th semiannual Barometer in the series, which began in November 2009; respondents for the 12th edition were surveyed February and March. The objective of the Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve.