Downloaded 183 times
Uploaded byAlexander Abolmasov
Understanding Russia and Private Equity Landscape
Russia presents opportunities for private equity investors, though concerns remain. Russian private equity has consistently outperformed other markets, with the economy recovering strongly from the financial crisis. While corruption and demographics pose challenges, surveys show Russia is seen as the #2 most attractive BRIC country for investment. Major deals continue to occur, and the private equity industry in Russia includes around 20 established firms with significant assets under management prior to the crisis. Understanding the opportunities requires overcoming stereotypes, but meeting with leading Russian private equity players can provide the information needed to evaluate investment prospects.
More Related Content
Similar to Understanding Russia and Private Equity Landscape
Understanding Russia and Private Equity Landscape
- 1. Alexander Abolmasov Managing Partner NRG www.nrgc.com Understanding Russia: Abyss or good ride? SuperReturn Emerging Markets 2011 26 - 28 June 2011, Geneva, Switzerland Good morning! Let’s discuss private equity investments into Russia. For many foreigners investing in Russia is like extreme skiing. It could be exciting, but many are afraid to get injured.
- 2. What is Russia:? So what pictures come to you mind, when you think about Russia?
- 3. Have you imaginedone of these? To many people it is something of these.
- 4. British Point ofView Your stereotype image of Russia may depend on your cultural background. In UK most people thing about Russians as very rich people, who buy real estate in London. The same thing in Switzerland. On arrivals in Geneva airport I’ve see only one reference to Russia: an HSBC advert stating that Russian billionaires are 18 years younger than American ones on average.
- 5. German Point ofView In Germany they pay more attention to Russian natural resources, especially gas. Another problem is that on the map of Europe you always see only a small part of Russia. The rest just doesn’t fit on the screen or page. So it is hard to understand
- 6. US Point ofView For Americans it is even harder, because Russia historically is the Arch Rival. Also Russia is broken into two parts on an American map of the World. America is in the center and Russia is surrounding World from the left and from the right. This is quite an uncomfortable notion for the most peoples minds.
- 7. Russia is soHUGE ? But actually Russia is not so huge. To understand that you should look at Russia … from space at night. Most activities are located in Central Russia and near this zigzag of light, which is Transiberian railroad.
- 8. Not so hugefor private equity deals Central and Northern Russia Urals Siberia This corresponds with population density map. 90% of private equity deals are done in highlighted regions, which have the size similar to Europe. Once people understand this, it is much easier to fit Russia into their minds.
- 9.
- 10. Now to Russianeconomy. For the last two years it was in hate mode of love&hate cycle. However, yesterday’s poll results in this conference, where Russia took second place for investment climate among BRIC countries, shows that we are moving back to love mode of this cycle.
- 11. If I bringRussian deal to Investment committee they could fire me. If I don’t bring Chinese deal to Investment committee they could fire me. Partner Leading LP company However, sometimes personal courage is required a to present Russian funds on investment committee, because people are afraid to be fired for this.
- 12. Let’s Test thePerception Gap about Russia Do you Have you heard that Have you heard of know what “Let’s transform Goldman Sachs updated their report in 2010 and is BRIC? BRIC into BIC”? Russia is now #2 based on attractiveness?
- 13. Do you Have you heard of Have you heard that know what “Let’s transform Goldman Sachs updated their report in 2010 and is BRIC? BRIC into BIC”? Russia is now #2 based on attractiveness? Statistic from BVCA Summit, London (March 2011) 95% 45% 0%
- 14. Concerns about Russiaare overblown and offer investors a chance to buy into booming growth stories. Contrary to the email I get every two hours about why I should drop the R from BRIC, I quite like Russia. June 2011 Jim O'Neill Chairman of Goldman Sachs Asset Management
- 15. Russia is stillvery attractive According to latest Goldman Sachs BRIC and N-11 economic research http://goo.gl/sx6Vb #2 MCap growth 10.2% forward 20-yr CAGR (#1 is China with 11.5%) #2 Allocation growth From 1% to 3% in MSCI in 20 years #6 GDP Bigger than Germany and France in 20 years #11 GDP growth But at least 30% GDP/capita higher than in countries with higher GDP growth #5 Strategic investors target According to UNCTAD survey after China, Brazil, India and US 46% of wannabe entrepreneurs Among people 20-29 years compared with only 29% for 30-47 years.
- 16. Economic recovery in2010-2011 Financial side Consumer side - Stock markets - Consumption - Exchange rate - Consumer credit - IPO window 2500 14 700 New car sales (left axis) Loans for individuals growth (right axis) 500 # of Russian companies IPOs/SPOs RTS Index 12 600 400 2000 300 10 500 Thousands units 200 1500 8 400 RUR bn 100 6 300 1000 0 4 200 -100 500 2 100 -200 0 0 0 -300 Source: RTS, PREQVECA Source: Autostat, Bank of Russia
- 17. Biggest deals raised $1.3bn in NASDAQ IPO Biggest Net IPO Since PepsiCo acquired 66% stake in Wimm-Bill-Dann for $6bn Mail.ru raised about $500m through IPO in LSE Nomos Bank raised $718m in first Russian private bank LSE IPO
- 18. Outstanding issues Corruption - Some progress, but not enough - Main political topic with approval rating of Russian government below 40% - Crowdsourcing in fighting corruption (Navalny and Rospil) Demographics - Population stabilized (growth rate 0% in 2010) - Main growth comes from CIS countries and minority ethnic groups - Russia is expected to have Muslim majority by 2050
- 19. Poll results SuperReturn Emerging Markets 2011 26 - 28 June 2011, Geneva, Switzerland If you had to invest US$1m in one of the countries listed below, based on the arguments, which one would it be? 11.2% 24% 34.4% 30.4% Brazil Russia India China
- 20. Private Equity Landscape
- 21. Russian PE consistentlyoutperforms 20,1% EBRD Russia/CIS PE 32,3% Portfolio 16,7% 15,0% Cambridge EM 20,6% VC&PE Index* 8,3% 16,9% EBRD PE Portfolio** 25,0% 6,4% Ten years Five years One year Source: Cambridge Associates, EVCA/Thomson Reuters, Bloomberg and EBRD * EBRD tracked portfolio pooled end-to-end return, net of fees, expenses, donor grants and carried interest. Excludes property funds, and includes liquidated partnerships. ** Pooled end-to-end return, net of fees, expenses, and carried interest. “The "Since Inception" figure represents the net pooled IRR since inception for funds formed between 1980 and 2009.
- 22. Russian PE industrysnapshot EBRD Funds Captive and semi-captive Russia Quadriga East Partners BVCP Alfa CP Icon CP Capital Capital Rusnano VTB NRG UFG Capman Wermuth Svarog Uralsib Capital Independent New players Mint Aurora UCP Aton Capital Russia Elbrus Da Vinci Prometheus 50-100 private funds/ Capital family offices
- 23. Trends Mergers Norum/Capman, Delta/UFG Spin-offs Elbrus, Quadro Deathpool EagleCP, Trifecta New funds seeded with HNW money Aton, Prometheus, UCP Mezzanine NRG
- 24. Case Study: Genser Biggest Infinity and Nissan Dealer in Europe 12% of Nissan market in Russia 12 brands/24 dealerships in Moscow and in Central Russia Initial Hybrid equity: April 2009 investments: 2007 Secured loan with equity kickers Exit to IPO Multiple: 1.5x 2011 Multiple: 5x Current return 20% IRR: 45% IRR: 30% 24
- 25. Case Study: Begemot #2toy retailer in Russia Mid/low prices Growth in 2 years: 50 -> 200 retail outlets. 90% EBITDA growth 70% sales growth Mezzanine transaction summary • Secured loan with equity kickers • Use of funds: refinancing/working capital • Board seat and veto rights • Current return: 18% • IRR: 41% 25
- 26. NRG Portfolio Genser: sales & EBITDA, $m (car dealer) Ufanet: sales & EBITDA, $m (internet provider) 1 800 70 Sales Sales 1 600 EBITDA 1 465 EBITDA 58 60 1 384 1 400 50 50 1 200 43 42 1 000 1 000 40 800 724 30 600 20 15 16 400 10 11 10 200 66 56 54 44 0 0 2008 2009 2010 2011E 2008 2009 2010 2011E Source: company data Source: company data Begemot: sales & EBITDA, $m (toy retail chain) Umnitsa: sales & EBITDA, $m (baby food) 200 80 Sales 178 Sales 180 68 EBITDA 70 EBITDA 160 60 54 140 125 123 120 50 106 100 40 80 30 60 19 19 20 14 40 28 11 15 18 10 20 12 3 0 0 0 2008 2009 2010 2011E 2009 2010E 2011E 2012E Source: company data Source: company data 26
- 27. NRG. Profile. Independent alternative investment manager Volga River One C.P. First Closing: 29 Sept 2006 Current size (cash): US$178 m Number of LPs: 20 (15 private + 5 institutional) Portfolio companies: 6 (telecoms, retail, food production) Tenor (years): 5+2 with 51% approval of LPs Volga River Growth First Closing: $135m, 4Q 2010 Target size: US$250 m LPs: EBRD, local Institutional LPs Tenor (years): 5+2 with 75% approval of LPs
- 28. Summary • Russian private equity consistently outperformed other private equity markets • Russia is #2 out of BRIC by investment attractiveness according to Alexander Abolmasov poll on this conference and also Email: aabolmasov@nrgc.com according to Goldman Sachs WWW: www.nrgc.com • Russian economy has fully recovered after the crisis • ~20 GPs with AUM of more than $150m before the crisis • Only a couple of GPs left with significant amounts of dry powder Understanding Russia could take years, but understanding Russian private equity is easy. Just come to Russia for two days have meeting with 10-12 major players and you will get enough information to make a decision.