Russian Private Equity Firms

Russian Private Equity Activity is on the Rise

I studied Russia for a time in college (culture, economics, language, etc.) and it is a fascinating country, especially its business sector. Although the country suffers from a less than transparent business environment and real and perceived corruption (at least according to the corruption perception index), the Russian Federation has attracted an impressive level of foreign investment in recent years and several private equity firms are taking a chance on investing in Russia.

According to an Ernst and Young study, Russian private equity activity has been on the rise in recent months. Deal value last year was double what it was in 2010 and deal volume has steadily climbed as of late. Some of that growth has been cultivated and encouraged by the Russian government and the market situation continues to look good for private equity firms, says one expert.

Private equity investments in 2011 were $4.2 billion, almost twice the 2010 figure of $2.2 billion, while deal volumes also climbed from 46 in 2010 to 55 in 2011. Average deal value grew from $50 million to $80 million, said the analysis, which included equity deals in excess of $5 million.

Private equity funding is becoming increasingly popular among Russian businesses, as bank credit has become costlier over the last six months and global financial market conditions are deterring initial public offerings as an option for raising capital, according to Ernst & Young.

“The market situation continues to look good for private equity firms,” says Davron Rustamkulov, Ernst & Young partner. “Companies in many sectors performed poorly for macroeconomic reasons, which, combined with heavy debt burden as a pre-crisis legacy, makes many of them call the PE firms while shopping for finance. Private equity investors are an expensive, but often the only, source of finance and are extremely picky, showing their preference to invest in companies with a proven business model and a clear mid-term exit strategy.”

A number of major deals involving two or more financial investors were announced in the manufacturing and media sectors in 2011. RUSNANO, Baring Vostok and Russia Partners invested in Novomet, a group of companies engaged in manufacturing oil production equipment; while News Outdoor was acquired by Alfa Capital Partners, NOOH and VTB Capital. Source

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