The Russian private equity market appears to be one of the few sections of the investment community welcoming the economic meltdown currently afflicting the rest of the world.
In a report from advisory firm Deloitte, half of those PE houses surveyed believe the global liquidity crisis is a positive development for private equity activity in Russia, with 53% expecting entry multiples to drop over the next six months, compared to just 9% a year ago.
Russian companies are increasingly attracted to private equity in the absence of more traditional forms of financing. The public markets are effectively closed to new issues, valuations for those businesses that are listed are at a 2- year low, and accessing debt is even more difficult in Russia than it is in the US and Western Europe.
Vitalij Farafonov in Deloitte’s Moscow office, said: “Currently most companies are really left with only two sources of funding; private equity or a strategic investor. This provides a great opportunity for private equity houses which can be more selective and buy well. However, the scarcity of capital could also have a negative impact on private equity in the future by slowing the economy and therefore slowing the performance of their portfolio companies. This is especially true for consumer-driven industries which remain the most popular home for private equity money.”
The survey included 65 private houses active in Russia, 31 of which were non-Russian funds.
Other findings include: 56% expect the size deals in the country to either decrease or remain the same over the next six months, compared with 18% a year ago; 28% expect market activity to increase over the next six months, compared with 82% a year ago; and 47% believe the consumer and related sectors will produce the most investment opportunities.