Russian private equity rising

Russia is seeing an upturn in private equity activity, according to new figures from Ernst & Young, with deal value in 2011 double 2010 levels and deal volume also creeping upwards.

Russian companies are increasingly turning to private equity for funding, a new study by Ernst & Young has revealed.

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.  

The high-tech and telecom sectors attracted the strongest investor interest in terms of deal volumes, accounting for 42 percent of all deals in 2011, said the report.

The Russian government appears to be supporting private equity investment in the country. The $10 billion Russian Direct Investment Fund, funded entirely by the government to the tune of $2 billion over the next five years, in September appointed some of private equity’s biggest names to its international board of advisors, including Steve Schwarzman, Leon Black and David Bonderman.