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Article percis 4_trends_results_and_expectations_of_private_equity_market_development_in_russia

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  • 1. TRENDS TRENDS, RESULTS AND EXPECTATIONS OF PRIVATE EQUITY MARKET DEVELOPMENT IN RUSSIA What are the major trends and results of Russian private eq- uity market in 2010? What are the expectations of market de- velopment in 2011? Managers of private equity firms share their thoughts with readers of Private Equity Russia & CIS Journal Benjamin Wilkening Partner, Mint Capital First of all, the Russian PE market in Russia has not yet fully recovered from the financial crisis, and I expect deal volumes to remain sub- stantially below peak levels of 2007/08. A number of players tried to raise first time funds before the crisis. Those who were lucky in their timing to raise/close new funds before the storm hit, are now in the enviable position to have dry powder in a down cycle. For the remaining, it will be difficult for the foreseeable future to raise a first-time fund. Established PE players with a track record have a better chance of raising funds into the recovery.PRIVATE EQUITY RUSSIA&CIS JOURNAL (PERCIS) #4 December 2010 | January 2011 Strangely enough, the crisis has not had the effect of bringing a lot of cheap deals onto the market. At least not of good quality. Many of the weak companies simply died, whereas the ones most interesting for PE have probably come out of the crisis strengthened: a better balance sheet, lower cost base and better managed margins and – most important – a much stronger position vis-à-vis competition. The owners of these companies know they can still ask a good price for their business. So, in summary, I expect 2011 to be a year of still few, but higher quality deals – and one can hope at reasonable valuations. Number and Aggregate Value of Buyouts Globally by Year Aggregate Deal Value by Region Q1 2008 - Q4 2010 3500 700 3000 600 45 Aggregate Deal Value $bn 40 2500 500 Aggregate Deal Value ($bn) Numbetr of Deals 35 2000 400 30 25 1500 300 20 1000 200 15 10 500 100 5 0 0 0 2006 2007 2008 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 No. of Deals Aggregate Deal Value ($bn) N.America Europe Asia & ROW Source: Preqin Source: Preqin Giedrius Pukas Managing Partner, Quadro Capital Partners If we are talking about Russia and CIS 2010 – it was still a very idle year, except for the players that have raised fresh funds before the crisis and were taking advantage (the ones who had guts) of the discounted market opportunities. 2011 should be much more active and Russia should return to international player’s monitors by the end of the year. Having said this, Russia’s PE markets remain very small and fragmented and I do not expect any fierce competition any time soon.10 AllEquityFunds PERCIS http://www.percis.ru/
  • 2. Maxim Nefyodov Managing Director, ICON Private Equity 2010 was not the best year for private equity in Russia, however pessimistic scenarios didn’t come to life either. On the contrary, dynam-ics of investments into Russian non-financial sector moved upwards compared to 2009 as the result of both general recession exit and seri-ous state efforts to counter negative effects of the downturn. Such efforts are planned to decrease economy dependence on raw materialsexports by stimulating innovative sectors development – something that will offer significant challenges and opportunities for privateequity community. In my view we’ll see robust private equity activity in three key areas in 2011: • Mining and oil&gas due to current high hydrocarbons prices that approach pre-crisis peak levels; • Innovative import substitution businesses which can be the basis of ‘new Russian economy’; • Agriculture sector which becomes a prominent investment recipient worldwide due to unprecedented agflation and scarcity of fertile land. Demand for private equity capital should also be on the rise in 2011. Many companies overstretched themselves aiming for a large IPOthat never happened and are currently in need not only of financial injection but restructuring and expansion expertise offered by privateequity funds. Number and Aggregate Value of Deals by Global Number of PE-Backed Exits by Type and Aggregate Exit Industry, 2010 Value: Q1 2006 - Q4 201030% 300 8025% 70 Aggregate Exit Value ($bn)20% 250 6015% 200 No. of Exits10% 505% 150 400% 30 100 Healthcare Information Technology Food & Agriculture Energy Industrials Materials Business Services Telecoms & Media Consumer Other 20 50 10 0 0 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 No. of Deals (%) Aggregate Deal Value (%) IPO Restructuring Sale to GP Trade Sale Aggregate Exit Value $bn Source: Preqin Source: Preqin PRIVATE EQUITY RUSSIA&CIS JOURNAL (PERCIS) #4 December 2010 | January 2011 Nickolay Zubtsov Vice President, New Russia Growth Russian private equity market saw limited activity in 2010, both in terms of fund-raising and new transactions. No new funds were raisedon the market (excluding those with the participation of the state capital) and few transactions were closed, however funds with dry powdermade some remarkable investments closer to the end of the year. The main reason for this lack of activity was market uncertainty in thebeginning of the year, but the closer was the end of the year, the more optimistic the market players became. As concerns 2011, we are generally positive. We expect market to be more active and more deals to be closed as new funds come to themarket, but nevertheless market uncertainty still remaining and future economic shocks and market downturns are still possible. Join us in LinkedIn Follow us in Twitter group — Private Equity Russia & CIS www.twitter.com/allequityfunds/ 11 AllEquityFunds PERCIS http://www.percis.ru/
  • 3. PRIVATEEQUITYRUSSIA & CIS SUBSCRIPTIONelectronic print version 40 Euro version 99 Euro + delivery costs FILL OUT THE ONLINE FORM TO SUBSCRIBE AT WWW.PERCIS.RU