PricewaterhouseCoopers expects 2008 to set a merger and acquisition record in financing, even when compared with this year's boom. Experts warn, however, that multipliers will shrink with a mortgage crisis in the United States and the upcoming sale of the Russky Standart Bank-if it benefits the buyer more than the seller.
According to PricewaterhouseCoopers statistics, the Russian financial sector saw a total of 31 transactions in 2006 at an aggregate $4.8 billion, while the first half of 2007 saw only 15 at a lump sum of $2.5 billion, which allows for expectations that this year will outrun the previous. Banking accounted for 61% of the total number of deals and 71% of sums involved. Insurance came next with 20% on both indices. Retailers and investment banks were in the greatest demand.
These figures are no sensation-priorities in Russian bank acquisition have not changed for two years now. Another PricewaterhouseCoopers forecast reports that overseas financiers will stay the principal purchasers, which is no surprise either. Something else is causing anxiety: will Russian banking assets retain their high prices next year? Or will they drop because of the American mortgage crisis, liquidity deficit in the transnational market and other purely Russian factors?
Analysts don's think the mortgage crisis across the Atlantic has strongly hit Russia yet, but it will certainly have an impact on M&A prices-mainly because it sends loan interests up to hit American and European bankers, the principal and the most generous purchasers of Russian assets. They will surely get more tight-fisted now. A year or two ago, they never stopped at buying a Russian bank with a 4-6 multiplier. Now, analysts expect multipliers to shrink to 2-3.
The mortgage crisis is not the only reason. Overseas bankers say that the most lucrative acquisitions were made in Russia a year or two ago-Raiffeisen International with Impexbank, and Societe Generale with Rosbank. Experts regard the latter as about the best deal among Russian M&As. Morgan Stanley wisely bought the City Mortgage Bank, small but good for specialization, while Italy's UniCredit acquired 100% of the stock in the International Moscow Bank. These were only few instances.
Foreign experts say Russia presently has only two groups of banks-lucrative assets not for sale and dubious ones, offered at inflated prices.
The situation certainly demands that concessions be made. Most likely, sellers will have to cut their appetite, especially if Russia sees a mega transaction before the start of next year, that is, if Vneshtorgbank acquires Russky Standart. Possibly, VTB will eventually coax Rustam Tariko into selling his most cherished property-and the most prosperous of Russian retail banks-at a reasonable price, with a 2-3 multiplier instead of 7, as he demanded during talks with BNP Paribas. If things go this way, VTB will gain tremendously, while the M&A market will thoroughly change pricing standards. Really, after such a deal who would expect a 3-5 multiplier, let alone 6?
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
