2009 - CRE

38
Cover Story:
Partners.­“Companies­that­are­fighting­tosurvive­will­be­forced­to­sell­their­assets.­
For­ instance,­ some­ major­ developers­ arealready­
forced­ to­ sell­ their­ assets­ withgreat­discounts­and­are­abandoning­theirplans­for­2009.”There­is­no­doubt­that­this­year’s­M&Amarket­
will­ be­ the­ year­ of­ the­ purchaser.­
There­ is­ an­ increasing­ number­ of­ newpropositions­appearing­on­the­market.­Mostinvestors­are­sitting­on­their­money­and­areawaiting­new­opportunities.­The­supply­farsurpasses­the­demand­and­many­analysts­arecertain­that­the­price­of­the­assets­has­notreached­bottom­yet.­
Vladimir­ Sokov­ believes­ that­ one­ ofthe­principal­trends­in­the­development­ofthe­
M&A­ market­ will­ be­ the­ necessity­ ofthe­
buyers­ to­ rely­ on­ their­ own­ financialresources­since­the­debt­capital­market­willremain­highly­restricted.­At­the­same­time,the­
availability­ of­ private­ funds­ will­ alsoremain­
limited.­ In­ this­ regard­ we­ shouldbe­
expecting­ a­ growth­ in­ the­ number­ of­
companies­ being­ bought­ out­ in­ 2009­ –debtors­
in­ exchange­ for­ their­ debts,­ andalso­mergers­by­companies­on­the­brink­ofbankruptcy­that­pick­up­equity­in­strongercompetitors­
in­ exchange­ for­ controllingequity­
in­ their­ own­ companies.­ With­ thedeepening­crisis­there­might­be­an­increasein­the­number­of­sell-buy­transactions­ofblocking­
stakes­ (over­ 25%),­ which­ willallow­
potential­ bankruptcies­ to­ receiveadditional­funding­without­losing­controlover­their­businesses.It­is­also­expected­that­the­conditionsfor­
purchasing­ assets­ will­ suffer­ somemajor­changes,­essentially­with­regard­tothe­price­and­structure­of­the­transactions,the­closing­terms,­accounting­mechanismsand­
guarantees­ for­ fulfilling­ one’sresponsibilities­by­each­party.­One­of­themajor­
questions­ which­ undoubtedly­ willbecome­
the­ stumbling­ block­ between­
the­ buyer­ and­ seller­ is­ the­ actual­ priceof­
these­ assets.­ Normally­ a­ price­ is­ setin­
accordance­ with­ the­ financial­ resultsof­
the­ company­ being­ purchased­ overa­
determined­ timeframe.­ But­ very­ fewbuyers­
in­ 2009­ will­ be­ relying­ on­ theseresults,­say­over­2008,­since­determiningthe­
actual­ profitability­ of­ the­ offeredassets­
in­ a­ crisis­ situation­ is­ practicallyimpossible.­
As­ a­ result­ the­ price­ will­ bedetermined­on­a­subjective­basis­by­bothseller­and­purchaser.
“On­ the­ other­ hand,­ such­ popularinstruments­
like­ withholding­ payments,deferment­of­payments,­and­so­on,­will­mostcertainly­become­a­rarity­in­this­year,­sincethe­interested­parties­will­be­ready­to­sell­
their­ assets­ for­ far­ less­ money­ but­ rightaway,”­says­Vladimir­Sokov.­“We­are­alreadyseeing­
sellers­ interested­ in­ fast­ deals­ byproviding­
all­ possible­ documentation­ invery­
short­ timeframes­ and­ hastening­ allbureaucratic­
procedures­ –­ they­ are­ mostcertainly­
interested­ in­ finalizing­ thetransaction­as­fast­as­possible­before­thebuyer­
changes­ his­ mind­ in­ view­ of­ thechanging­market­situation.”­Sokov­believesthat­
there­ won’t­ be­ too­ many­ companiesfully­
prepared­ for­ such­ transactions,­ thathave­
restructured­ the­ required­ assets,prepared­
the­ pre-sale­ due­ diligence­ andminimized­
the­ legal,­ financial­ and­ taxrisks,­but­it­is­essentially­those­that­did­sothat­will­have­an­advantage­over­the­othermarket­players.
There­ is­ no­ doubt­ that­ the­ numberof­
sellers­ on­ the­ market­ will­ increasesubstantially,­
offering­ their­ assets­ with­
­­ “ It­is­somewhat­indicative­[of­the­times]­that­thenumber­of­M&A­transactions­in­Europe­in­the­first­twomonths­of­2009­surpassed­the­overall­number­of­such­transactions­for­the­whole­of­2008.
”
various­levels­of­encumbrances­(debts­andothers),­from­unexpected­financial­burdens,ongoing­legal­disputes,­with­direct­bearingon­the­proposed­asset.­This­will­predeterminethe­additional­risks­for­the­purchaser­withregard­to­this­asset.Transactions­for­the­identification­of­newpartners­are­also­appearing­on­the­market.­“While­before­companies­would­avoid­at­allcosts­any­co-investors,­today­they­are­readyto­explore­such­eventualities,”­says­Alexey­Mogila.­“This­is­caused­by­the­increasinglyexpensive­funding­and­high­interest­rates.­It’s­silly­to­take­loans­from­a­bank­at­30%.so­
many­ companies­ are­ ready­ to­ considerco-investor­factor.­The­niche­from­which­thebanks­emerged­is­being­filled­once­again.”
According­to­Florian­Schnaider,­one­ofthe­
problems­ that­ will­ emerge­ with­ thecrisis­
is­ corporate­ raids.­ “I­ don’t­ meanits­
criminal­ aspect.­ I­ am­ talking­ abouttaking­advantage­of­the­weaknesses­of­theseller,”­says­Schnaider.­“For­instance,­whena­
company­ cannot­ honor­ its­ bank­ loansthe­bank­has­two­alternatives:­review­thecompany’s­loans­for­a­new­credit­or­requestimmediate­
repayment.­ This­ is­ legal­ butthe­
bank’s­ business­ is­ with­ money­ andnot­
with­ assets.­ In­ Europe,­ as­ a­ generalrule,­
a­ company­ gets­ loans­ from­ variousbanks,­and­hence­a­bank­has­no­interest­inpicking­up­partial­assets­in­exchange­forthe­
debt.­ Furthermore,­ diversification­ isnot­practiced­much­in­Europe,­especiallyby­banks.­With­the­deepening­crisis­suchtransactions­
will­ become­ even­ moreimportant.”
Market­ players­ and­ experts­ also­ notethe­
increasing­ role­ of­ the­ governmentin­
M&A­ transactions.­ According­ to­ Anna­
Shiryaeva,­the­protectionism­measures­andgovernment­intervention­in­the­economyare­
an­ inherent­ part­ of­ any­ global­ crisis.­
In­ Russia,­ personal­ contacts­ betweenbusiness­and­various­power­structures­aresubstantially­decisive­in­the­obtention­ofresources­for­the­acquisition­of­previouslyimpregnable­
competitors­ by­ the­ thesebusinesses.
“Undoubtedly,­ the­ risk­ level­ andintricacies­
in­ the­ process­ of­ a­ mergerand­
acquisition­ transaction­ havesubstantially­
increased­ in­ 2009­ but­ inthe­
long­ term,­ the­ acquiring­ party­ willhave­
a­ unique­ opportunity­ to­ purchaseassets­
at­ a­ very­ profitable­ averagemarket­price,”­considers­Vladimir­Sokov.­
“The­ sellers­ will­ be­ companies­ on­ theverge­
of­ bankruptcy,­ burdened­ by­ loansand­
without­ any­ possibility­ of­ raisingany­
additional­ funds.­ We­ can­ henceconclude­that­there­will­be­a­substantialconsolidation­of­capital­in­2009,­based­onthe­acquisition­of­weaker­market­playersby­the­fittest.”­