38 Cover Story: Partners.“Companiesthatarefightingtosurvivewillbeforcedtoselltheirassets. For instance, some major developers arealready forced to sell their assets withgreatdiscountsandareabandoningtheirplansfor<strong>2009</strong>.”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 <strong>2009</strong> –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 <strong>2009</strong> 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&AtransactionsinEuropeinthefirsttwomonthsof<strong>2009</strong>surpassedtheoverallnumberofsuchtransactionsforthewholeof2008. ” 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 <strong>2009</strong> 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 henceconcludethattherewillbeasubstantialconsolidationofcapitalin<strong>2009</strong>,basedontheacquisitionofweakermarketplayersbythefittest.”
#06 (112) / 16–31.03.09 | Interview | | Cover Story | | Investment | | Property Management | 39
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