OREANDA-NEWS. On 22 July 2008 was announced, that in 2007, the Russian M&A market value reached USD 131.7 billion — twice the figure for 2006 — while in Ukraine and Kazakhstan M&A market values reached USD 15.1 billion and USD 13.2 billion, respectively, says a new report on M&A activity by Ernst & Young.

Figures for Russia show that the total number of M&A transactions increased by 33% to reach approximately 590, with the largest transactions taking place in the oil and gas, utilities, and metals and mining industries. Major Russian companies are expanding abroad, aiming to become global players. At the same time, foreign players are increasing their presence in Russia; their interest has shifted from extraction industries to utilities, manufacturing and financial services. While the majority of transactions in Russia are conducted by strategic investors, private equity firms are entering the market and are expected to increase their activities significantly over the next few years.

”We see a high potential for future market growth and consolidation in a number of industries, the including financial sector, retail, services, infrastructure and residential construction,” said Evgeny Trusov, partner and head of the Corporate Finance group at Ernst & Young. “Despite the instability on the international financial markets, many Russian companies remain attractive investment targets due to high expected return.”

In Ukraine market growth is being fueled by increasing transparency, as well as legislative developments and Ukraine’s accession to the WTO, encouraging foreign investors to expand their presence. Kazakhstan’s M&A market has high potential for growth as well, particularly in the consumer products and financial sectors.

According to the report, the markets in other CIS countries are characterized by a higher risk and higher expected returns. The growth of transactions in the countries of Central Asia, the Caucasus, Belarus and Moldova will depend on structural reforms, political developments and legislative improvements.

Other key findings of the survey:

Russian acquisitions abroad more than doubled and reached USD 23.2 billion.

Foreign investors increased their acquisitions in Russia by 45% to more than USD 20 billion in 2007.

Deal value with state-owned buyers represented 30% of the total amount of domestic transactions in 2007.

While the volume of private equity transactions in Russia increased fivefold in 2007 to USD 5 billion, this still represents less than 5% of Russian-target acquisitions, much lower than the European average.