Russia M&A

M&A in Russia 2012
February 2013
KPMG in Russia and the CIS
2 | M&A in Russia 2012 2011
Contents
M&A in Russia in 2012 Sector analysis Communications and media Consumer markets, retail and agriculture Financial services Metals and mining Oil and gas Power and utilities Real estate and construction Transport, logistics and infrastructure Other markets Methodology KPMG in Russia and the CIS 10 14 18 22 26 30 34 38 42 46 47 4
2013 ZAO KPMG. All rights reserved.
M&A in Russia 2012 | 3
Sean Tiernan Head of Transactions and Restructuring

Total deal value, USDbln
2012 proved to be a strong year for M&A in Russia, and one that rewrote history: M&A in Russia more than do oub bled to USD D13 39.1 1 billion Ro osnefts acquisition of TNK-B BP was the lar rges st dea al ever announc ced in Russi ia, and second largest globally Un nde erlying M& &A, excluding TNK-BP, increased by 21% to US SD8 83.1 billio on driven by the proportion of larger transactions The secondary public offering (SPO) of Sb berb ban nk was Russias lar rges st-e ever privatiz zation, and second largest offering in the EMEA region in 2012 De eal volu umes increa ased by y 12 2% against the backdrop of a 10% decline globally and a 19% decline across the rest of Europe
160 USD139.1 bln 140 (total 427 deals) 120 100 USD83.1 bln (total 425 deals) USD68.2 bln (total 381 deals) 80 USD56.06 bln 60 (Rosneft/TNK-BP) 40 20 2011 0 2012
ACQUISITION OF TNK-BP BY ROSNEFT

60 50 40 30 20 10 0 56.0 Rosneft/TNK-BP 23.0 Oil and gas 20.3 11.6
In late 2012, Rosneft announced that it had agreed to acquire TNK-BP from its joint venture (JV) partners, BP and the AAR consortium in a deal valued at USD56 billion. Under the terms of the deal, BP will receive USD17.1 billion in cash and 12.84% of Rosnefts treasury stock for its 50% interest in TNK-BP. Simultaneously, BP will buy 5.66% of Rosnefts shares for USD4.8 billion, and as a result will hold a 19.75% stake in the company. The owners of the AAR consortium, Alfa Group, Access Industries and Renova Group, will receive USD28 billion in cash for their 50% interest in TNK-BP.
The acquisition of TNK-BP is the largest deal ever in the history of Russian M&A, and the second largest deal globally in 2012. To give some perspective, this transaction was greater than the combined value of all M&A in the Russian oil and gas sector over the previous three years Once the transaction has completed, which is expected in the rst half of 2013, Rosneft will overcome ExxonMobil to become the largest listed oil company in the world, with annual crude oil production of over 200 million tons, and 5% of global oil production.
2009 2010 2011
4 | M&A in Russia 2012
Global overview
While Rosnefts acquisition of TNK-BP was without doubt one of the dening moments in the history of Russian M&A, the sheer scale of the transaction has a distortive impact on comparative analysis. We have therefore excluded this deal from the subsequent analysis in this survey1 to provide a more meaningful comparison with M&A in Russia in prior years. 2012 was a strong year for M&A in Russia, as illustrated by the growth in underlying activity the total value of deals increased by 21% to USD83.1 billion, excluding TNK-BP, while the number of deals increased by 12%, demonstrating the resilience of the market in light of the continued global economic uncertainty. By contrast, the value of deals announced globally increased by just 2% in 2012 to USD2.6 trillion2, notwithstanding three of the largest deals for a number of years the spin-off of Abbott Laboratories research-based pharmaceutical business to create AbbVie (USD66.4 billion), Rosnefts acquisition of TNK-BP and the pending merger of Glencore and Xstrata (USD45.8 billion). Although deal value increased, the volume of deals globally fell by 10% to the lowest level since 2005; activity in the USA and UK declined by 5% and 4% respectively, while the rest of Europe saw deal volumes fall by 19% as condence was knocked by the eurozone debt crisis that rumbled on throughout the year. Global M&A deal value and volume, 20052012
5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 46,662 40,822 35,457 44,100 39,969 42,664 42,074 50,000 40,500 40,000 30,500 30,000 20,500 20,000 10,500 10,000 5,000 0
37,923
Number of deals (volume)
2,623 2005
3,469 2006
4,070 2007
2,622 2008
1,894 2009
2,401 2010
2,545 2011
2,259 2012
Deal value, USDbln
Number of deals
Source: Thomson Deals database, Mergermarket database, analyst estimates, KPMG analysis Note: Figures from our previous surveys have been adjusted
Global and Russian M&A deal volume index, 20052011

200 140
Deal index- 2005 = 100
172 162 136 132 115 113 124 75 42 74 120 119 107 85
160 140 120 100 80 60 40 20 0 2005 2006 2007 Global
2008 Russia
2009
2010
2011
2012
1 2
Unless specically stated otherwise Thomson Reuters Global Mergers & Acquisitions Review, full year 2012
Russian overview
M&A in Russia remained heavily weighted towards domestic activity during 2012, although the value of cross-border3 deals increased by 30% to USD33.7 billion, representing 41% of the market (2011: 38%). The number of inbound transactions remained broadly at yet the value increased by 29% to USD17.1 billion compared to an aggregate decline of 14% across the BRIC nations4. The secondary public offering (SPO) of Sberbank, initial public offering (IPO) of MegaFon, and acquisition of SABMillers Russian and Ukrainian beer business by Turkeys Anadolu Efes accounted for 51% of all inbound investment in 2012. The USA, UK, China and Japan were the most active inbound investors, participating in 22 deals worth USD2.6 billion5. During 2012, there was a healthy diversication of deal value away from the historically dominant energy and natural resources sectors6 towards communications and media, and nancial services. Deal value in the energy and natural resources declined to 31% of the total market (2011: 43%) reecting the sustained absence of deals amongst the large Russian miners and integrated steel producers given volatile commodity prices, and to a lesser extent, unattractive returns for private investors in the power and utilities sector. A power reshufe in the telecoms sector involving Altimo, MegaFon and VimpelCom led to four transactions which accounted for three quarters of the USD16.1 billion of deals in the communications and media sector. Meanwhile, the SPO of Sberbank, its expansion into Turkey via the acquisition of Denizbank, and conversion of Gazprombanks subordinated debt to equity accounted for a similar proportion of deal value in the nancial services sector. With the exception of the energy and natural resources sectors, real estate and construction was the only other sector in Russia to record a decline in deal value during 2012.
Number of deals by type, 20112012 2012

50 40
74 73
2011
268 301
Deal value by type, 20112012 2012

20% 18%
Russian M&A deal value and volume, 20052012

180 160
817
867 688
900 800
Number of deals (volume)
140 120 100 80 60 40 20 0 40.5 2005 63.6 2006 93.1 2007 505 61.8(1)
700 56.0(3) 20.7(2) 375 214 381 600 500 300 200 77.5 2010 68.7 2011 83.1 2012 100 0
2011
20% 20% 62% 60%
427 400
122.4 2008
48.8 2009
Domestic Inbound Outbound
Deal value, USDbln Deals individually valued >USD20 bln Number of deals
Notes: (1) 2007: Liquidation of YUKOS assets (USD36.8 billion) and RAO UES reorganisation (USD25.0 billion) (2) 2010: VimpelCom acquisition of Weather Investments (USD20.7 billion) (3) 2012: Rosneft acquisition of TNK-BP (USD56.0 billion)
3 4
Inbound and outbound transactions Thomson Reuters 5 Excluding the SPO of Sberbank of Russia and IPO of MegaFon as geography of investors were not disclosed 6 Metals and mining, oil and gas, and power and utilities sectors 2013 ZAO KPMG. All rights reserved.
M&A in Russia in 2012
Cummulative growth, 2012 versus 2011

50% 40% 30% 20% 10% 0%
Jan Feb Mar Apr May Jun
21% 12%
Jul Aug Sep Oct Nov Dec
(10%) (20%) (30%) (40%) (50%) Deal volume Deal value, USDbn
Despite strong growth, Russian M&A remained volatile during 2012. Volume growth, which had been 40% at the end of Q1 2012, slowed to 7% by November as the number of deals valued at less than USD100 million fell by 50% during the second half of the year. Notwithstanding this, transactions of this size remained at the core of the market, comprising more than two thirds of all activity in the year. Conversely, the value of M&A was down by 42% at 31 March 2012. However, 19 deals valued in excess of USD1 billion were announced following the presidential elections, driving a sharp increase in the value of M&A through to November. The year ended with a ourish of deals, with volumes up by 90% in December, yet the value of transactions was down by a third on 2011. Reective of the 11 largest deals, two thirds of deals valued in excess of USD1 billion were concentrated in the communications and media, nancial services and oil and gas sectors in 2012. The average transaction value increased by 8% in 2012 to USD194 million.
Number of deals by sector in 20112012
Deal value by sector in 20112012
Communication and media Consumer markets, retail and agriculture Financial services Metals and mining Oil and gas Power and utilities Real estate and construction Transport, logistics and infrastructure Other markets
2012
65 55
51 44 40
2012
12% 10%
4% 19% 9% 1% 13% 9%
34 49
79
8% 9% 5% 17% 17% 17% 8%
2011
65 23 13 18 46 62 33
35 29
2011
15% 19%
8%
65
State owned enterprises were the most active participants in Russian M&A during 2012. For example, Sberbank, VTB, Rosneft7 and Inter RAO UES participated in 41 transactions with a combined value of USD17.1 billion, equal to 21% of the total market. During the year, Sberbank participated in the greatest value of deals at USD5.9 billion8, while VTB was involved in 14 deals, the most by any one party. Rosneft and Inter RAO UES participated in a total of 9 and 10 deals respectively, which in common with the majority of serial participants in Russian M&A, were focused on their core markets. A large number of deals involving Sberbank and VTB were outside of their core market, reecting the investment activities of these banks and the continued divestment of stakes acquired during the nancial crisis. There were also a large number of tender offers during 2012 as shareholders seized the opportunity to squeeze out minority holdings.
7 8
Excluding the acquisition of TNK-BP Excluding the SPO of 7.58% of Sberbank of Russia on the London and Moscow Stock Exchange
Russian M&A largest transactions in 2012

Target 1 MegaFon Sector Communication and media Financial services Communication and media Financial services Acquirer Investor Group Vendor Altimo/ TeliaSonera AB % share acquired Value USDm 26.1% 5,200
Sberbank
Investor group (SPO)
Bank of Russia
7.6%
5,200
VimpelCom Ltd
Altimo
Weather Investments II S.a r.l.
14.8%
3,600
Denizbank AS
Sberbank Vnesheconombank and current shareholders (Gazprom; NPF Gazfond; Gaztek; Novntekh) Anadolu Efes Biracilik ve Malt Sanayii A.S. Investor Group (IPO)
Dexia SA
99.9%
3,596
Gazprombank SABMiller Plc (beer business in Ukraine and Russia) MegaFon
Financial services Consumer markets, retail and agriculture Communication and media Transport, logistics and infrastructure Oil and gas
n/a
22.7%
3,125
SABMiller Plc TeliaSonera AB/ MegaFon Investments
100.0%
1,900
15.1%
1,830
JSC Freight One Imilorskoe, West-Imilorskoe and Istochnoe oilelds OOO Scartel WINGAS, WIEH, WIEE, Astora and Wintershall Noordzee B.V.
Vladimir Lisin (Private Investor)
Russian Railways OJSC
25.0%
1,616
OOO LUKOIL-West Siberia Garsdale Services Investment Limited
State auction Sergey Adoniev (75%) and Russian Technologies (25%)
n/a
1,650
10
Communication and media Oil and gas
100.0%
1,500
Gazprom OAO
BASF SE
50.0%
1,500 30,716 37.0%
Eleven largest transactions(1) As a % of total Russian deal value(1)

Note: (1) Excluding Rosneft/ TNK-BP
As anticipated, the pace of privatizations gathered momentum in 2012. In addition to Sberbanks SPO, privatizations raised a further USD5.5 billion, principally from two sectors. The USD1.6 billion privatization of the remaining 25% stake in Freight One was the largest deal in the transport, logistics and infrastructure sector, which also included the privatization of the gas transportation services company SG-Trans, and the Murmansk and Vanino commercial sea ports, which altogether raised USD1.3 billion. Meanwhile in the metals and mining sector, USD1.3 billion was raised through the privatization of stakes in the titanium producer VSMPO-AVISMA and fertilizer producer Apatit.
Outlook
We remain optimistic regarding the outlook for M&A in Russia during 2013, and expect continued growth across all key sectors of the economy albeit at more modest rates than those seen in 2012. The energy and natural resources sectors will continue to play an important role, although activity within each sector will result from different drivers. We expect activity in the metals and mining sector to remain subdued as the large and integrated players focus on cost efciencies and capital deployment given forecast commodity prices. Oil and gas majors are likely to make further divestments of non-core assets to optimize portfolio returns, while foreign players will seek opportunities to tap into Russias vast reserves, either through acquisitions or JVs. We anticipate further consolidation of generation and distribution assets in the power and utilities sector, driven by the State owned enterprises. With high levels of penetration, growth in xed line broadband is slowing by comparison to mobile access, such that although further consolidation of regional broadband operators is expected during 2013, but at a much lower scale compared to recent years. Importantly, VimpelCom recently announced its intention to carve-out its broadband assets to focus on mobile subscribers, and it remains to be seen whether other mobile network operators (MNOs) will follow suit. Public offerings of VTB, diamond producer Alrosa, shipping company Sovcomot, and nanotechnology focused RUSNANO have all been rumored for 2013, as the government pushes ahead with its privatization agenda. We also expect to see further privatizations in the transport, logistics and infrastructure sector during 2013, driven in part by the need to attract investors to modernize ageing assets. Companies that put IPO plans on hold in recent years but still require external funding will be watching the market closely as questions regarding price valuations and the capacity of Russian equity markets to absorb such a large number of offerings remain. The level of activity in the real estate and construction sector is likely to remain fairly stable in 2013 despite there being a number of large deals which are expected to close during the year, including the acquisition of the Metropolis shopping center by Morgan Stanley Real Estate Investing which closed in February 2013. Russia continues to attract international investors. Sentiment appears to be improving across the global economy following the last minute deal to avoid the US scal cliff, renewed optimism that the worst of the eurozone crisis may nally be over, and with equity markets rising. The government is taking steps to tackle corruption, increase transparency and reduce bureaucracy to create a more investor friendly environment in Russia but time will tell whether such measures address investors concerns regarding the perceived risks of doing business, and lead to a sustained increase in inbound investment over the medium term.
Total deal value: USD16.1 billion (+79%) Total deal volume: 51 (+16%) Market share by value: 19% (2011: 13%)
Although the headline value of M&A in the Russian communications and media sector increased by 79%, three quarters of deal vale related to Altimo and AF Telecoms reshufing of their interests in the telecoms market. Over 70% of deal volume in the year was driven by transactions valued as less than USD100 million. Several of our predictions from last years survey proved to be true during 2012; there was further consolidation of assets in the media segment, and in particular television, radio, and print, while the substitution of traditional media by the internet drove the acquisition of broadband assets and internet service providers (ISPs). The software segment was another key area of focus for Russian M&A participants in 2012, accounting for nearly one fth of total deal volumes. While internet investors Digital Sky Technologies and Mail.ru Group reportedly raised USD2.5 billion from a partial exit of their stakes in the social media companys IPO, 2012 turned out to be much quieter for both in terms of Russian M&A9 activity.
Telecoms
A power reshufe amongst telecoms players led to four transactions with a combined value of USD12.1 billion, equal to 75% of M&A in the communications and media sector during 2012. M&A in communications and media, 20092012
40 35
100
30 25 20 15 10 5 0 10.4 2009 12.8 2010 9.0 2011 16.1 2012 26 20.7 52 44 51
75
50
In April, Mr. Alisher Usmanov gained control of MegaFon via AF Telecom in a USD5.2 billion transaction aimed at aligning shareholder objectives and simplifying the capital structure of the company. The deal resulted in Altimo exiting its holding in MegaFon, and TeliaSonera reducing its stake. In a USD1.5 billion deal, AF Telecom subsequently merged its holding in MegaFon10 with the LTE operator, Scartel, into a new holding company (USM Holding) majority owned by Mr. Alisher Usmanov and his partners. The restructuring of MegaFons capital structure was completed in late November, when 15.1% of the company was listed on the London and Moscow stock exchanges, raising USD1.8 billion and reducing TeliaSoneras holding to 25%. Following its exit from MegaFon, Altimo increased its stake in VimpelCom in August to 41.85% through the acquisition of 14.8% of voting rights from Weather Investments for USD3.6 billion the largest outbound deal in the sector. In September, Telenor, the Norwegian telecoms group, increased its holding in VimpelCom to 42.95% by honoring its obligation to acquire shares from Weather Investments following its exercise of a put option in respect 14.8% of the voting rights11. However, Altimo seemingly took the advantage in the power struggle for control of VimpelCom in late October when it purchased a 6% stake from Ukrainian businessman Viktor Pinchuk for USD218 million, to take its interest to 47.85%.
Number of deals
25
Number of deals Deal value, USDbln VimpelCom/Weather Investments
Where either the target or acquirer is Russian 50% plus one share 11 Not Russian M&A, and not included in our database
10
Ten largest transactions in communications and media in 2012

Target 1 2 3 4 5 MegaFon VimpelCom Ltd MegaFon OOO Scartel Bulgarian Telecommunications Company AD Mail.ua Comedy Club Production Kaspersky Lab VimpelCom Ltd NVision Group Sector Telecom Telecom Telecom Telecom Telecom Acquirer Investor Group Altimo Investor Group (IPO) Garsdale Services Investment Limited Vendor Altimo/ TeliaSonera AB Weather Investments II S.a r.l. TeliaSonera AB/ MegaFon Investments Telconet (75%) and Russian Technologies (25%) % share acquired 26.1% 14.8% 15.1% 100.0% 94.0% Value USDm 5,200 3,600 1,830 1,500 926
Investors Group (VTB Capital and CCB PineBridge Investments Asia Corporate Commercial Bank, Bulgarian bank) Limited Mail.ru Group Ltd Gazprom-Media Holding Kaspersky Lab Altimo RTI Internet Invest Group Artur Dzhanibekyan (Private Investor); Garik Martirosyan (Private investor) General Atlantic Bertofan Investments (Viktor Pinchuk) Individual shareholders
6 7 8 9 10
Technology Media Technology Telecoms Technology
100.0% 75.0% 20.0% 6.0% 50.0%
500 338 300 218 200 14,611 91.0%
Ten largest transactions total As a % of total communications and media deal value

15 9
In July, VTB Capital and Corporate Commercial Bank (CCB) of Bulgaria, acquired a 93.99% stake in the Bulgarian Telecommunications Company for USD926 million. This was the second largest outbound transaction in the communications and media sector during 2012. Intriguingly, although this is the second acquisition by VTB in the Bulgarian market, we suspect that they were either acting as a nancial investor or consummated the transaction on behalf of a strategic player. On the infrastructure side, Russian Towers, the independent owner and operator of transmission towers in north-western Russia, announced the completion of a USD100 million investment by a group of investors comprising UFG Private Equity, Macquarie Renaissance Infrastructure Fund, EBRD and ADM Capital.
2011
8 6 27 30
Media
In last years survey we predicted that as delivery channels mature, the key Russian media groups would need to start looking for local and international content producers in order to secure quality content. One such example, was the acquisition of a 75% interest in Comedy Club Production by the TNT network, a subsidiary of Gazprom-media, for USD338 million. This is a clear sign of the freeto-air channel taking steps to secure revenue through the acquisition of a major content producer for TNT.
Communications and media
In addition to the acquisition of an 80% interest in O2TV, the Moscow-based owner and operator of TV stations, by a group of Russian investors for USD99 million, there were a further six acquisitions of stakes in television and radio companies during 2012. Away from television and radio, the second most active area within segment was print media, although each of the four deals was valued at less than USD10 million.
Technology
There was a notable increase in the level of activity in the technology segment during 2012, with 19 deals totaling USD1.5 billion in the year. The largest of these deals was the USD500 million acquisition of the Ukrainian webmail service provider, Mail.ua, by Mail.ru Group from Internet Invest Group. In February, Kaspersky Lab, one of the worlds largest makers of anti-virus software announced a recapitalization plan following a strategic review of the business. Under this plan, Kaspersky parted company with the US investor, General Atlantic, which had purchased a 20% stake in the company for USD200 million in 2010, together with a number of minority investors at a total cost of USD300 million. Another notable transaction was the acquisition of a 50% stake in NVision Group by RTI, the high-tech subsidiary of AFK Sistema, for USD200 million. Under the deal, RTI intends to acquire the remaining 50% of NVision in a swap transaction. The aim of the deal was to integrate the assets of NVision and RTI, which comprises RTI Systems and Sitronics, with a view to creating opportunities to realize synergies across the combined entities projects and customer base which includes Rostelecom, MTS and MGTS. A further 16 deals with a combined value of USD0.5 billion were announced in the technology segment in 2012, including four transactions related to ISPs and seven related to software companies.
Outlook
We do not anticipate any signicant growth in M&A activity in the communications and media sector during 2013, and expect the following trends to have an impact on M&A in the sector during 2013: Internet access is becoming routine in many aspects of daily life and given already comparatively high levels of broadband penetration in Russia, xed line internet is demonstrating slower growth characteristics compared to mobile access. Further regional consolidation of broadband assets, as observed over the last few years, is likely to continue albeit at a signicantly diminished scale. Moreover, VimpelCom has recently announced its intention to carve-out its broadband assets into a separate entity, in order to focus on its mobile subscriber services and higher growth segments. The timing of such a transaction has yet to be announced and it remains to be seen whether other MNOs will follow suit. We believe investments such as Baring Vostok Capital Partners USD75 million injection into Avito.ru, will continue in 2013 as the Russian internet space attracts greater attention from investors. The spread of handheld devices, mobile internet access and increase in online activity will drive reallocation of advertising revenues from print media to the internet. Traditional businesses will need to realign their strategies with customer preferences for ease of use and speed of transaction. Both factors will impact M&A in the media space during 2013. In 2013 we may see transactions driven by the need to comply with requirements of 4G license tenders conducted last year. It is possible that operators will seek ways to develop networks through sharing of infrastructure, creating JVs and acquiring regional players. Infrastructure investments are plausible but require a joint effort by MNOs and nancial investors (e.g. Russian Direct Investment Fund), and although interest is high specic investments remain quite remote at present. The high level of competition amongst MNOs is likely to see a shift in focus toward the quality of their subscriber base, and opportunities to reduce operating and capital expenditure. Foreign MNOs have successfully outsourced service functions as part of their strategy to focus on core operations, and we expect to see Russian players increasingly do the same. In turn, investors will be attracted to outsourcing companies with tested business models and growth potential.
Against a backdrop of a consumer market struggling to generate single digitgrowth, Russia continued to outperform and separate itself from the rest of the world. Most established consumer businesses in Russia delivered solid results in 2012, with many reporting double-digit revenue growth. Despite its resilience, the Russian consumer market showed signs of slowing in 2012, notwithstanding a 30% rise in consumer credit; ination increased to just below 7% by December from a historic low of 3.6% in April, and real wages growth fell to around 5% by the year end. These factors affected M&A activity in the Russian consumer markets, retail and agriculture sector, which saw the total value of deals remain broadly at at USD6.6 billion in 2012. However, the number of transactions almost doubled, with 79 deals announced in the year (2011: 40), driven solely by deals valued at less than USD100 million illustrative of the conservative sentiment of acquirers who were generally more focused on incremental bolt-on acquisitions as opposed to transformational transactions.
Key drivers
Drivers of M&A activity within the consumer sector were varied and specic to particular industry verticals:
Agriculture
M&A in consumer markets, retail and agriculture, 20092012
12
As predicted in the last survey, agriculture shaped up to be a very active segment, with deal activity underpinned by nancial investors seeking opportunities to invest in a growing market at reasonable price valuations. The largest deal in the segment was the acquisition of a 50% stake in the United Grain Company by Summa Group from the Russian government for USD186 million. Closely behind, the Arco Capital Corporation acquired Stoylenskaya Niva for USD180 million giving it access to the companys bakery business and milling plants and in support of its interest in developing agricultural businesses in emerging markets. In addition, EBRD took a minority stake in the growing organic vegetable producer Belaya Dacha. As for strategic investors, Cherkizovo acquired Voronezhmyasoprom for a consideration of USD138 million, and Japanese conglomerate Mitsui acquired a 10% minority stake in Sodruzhestvo, a leading global producer of soybeans and vegetable oils. Both deals focus on core operations of their primary relevant businesses.
100 79 75
Number of deals
10 8 6 4 2 0 2.3 2009 8.7 2010 6.5 2011 29 60 40
50
25 6.6 2012
Deal value, USDbln
Number of deals
Consumer goods
In 2012, 13 deals in the consumer goods segment were valued at less than USD10 million, of which eight deals, related to tender offers to squeeze out minority shareholders.
Ten largest transactions in consumer markets, retail and agriculture in 2012

Target 1 2 3 4 5 6 7 8 9 10 SABMiller Plc (beer business in Ukraine and Russia) Euroset Group JSC Baltika Breweries Peiderer OOO United Grain Company OJSC Stoylenskaya Niva AIC Retail assets of ENKA TC LLC (Citystore) M.Video VMP Group - Agricultural Assets Sodrugestvo Group of Companies Sector Food and beverage Retail (non-food) Food and beverage Consumer goods Agriculture Agriculture Retail (food) Retail (non-food) Agriculture Agriculture Acquirer Anadolu Efes Biracilik ve Malt Sanayii A.S. MegaFon Baltic Beverages Holding AB (a subsidiary of Carlsberg Group) Swedspan Holdings BV; Ingka Pro Holding Subholding I B.V. (a subsidiary of IKEA Group) JSC VTB Arco Capital Corporation Ltd Billa AG (Rewe Handelsgruppe) CJSC Depository Clearing Company (ZAO DCC) Cherkizovo Group Mitsui & Co., Ltd Vendor SABMiller Plc ANN Investment Company Minority shareholders Peiderer Grajewo SA Government of Russian Federation Unicor Management Company ENKA TC LLC Svece Ltd National Agribusiness Undisclosed % share acquired 100.0% 50.0% 12.1% 100.0% 50.0% 100.0% 100.0% 10.0% 100.0% 10.0% Value USDm 1,900 1,070 951 208 186 180 163 147 138 126 5,069 77.2%
Ten largest transactions total As a % of total consumer markets, retail and agriculture deal value

10 4
17 11
2011
25 50
The largest deal in the segment was Swedspan Holdings (IKEA) acquisition of Peiderer, a Russia-based manufacturer of wooden chipboards from the listed Polish company Peiderer Grajewo SA, for USD208 million. This strategic acquisition will enable IKEA to generate considerable efciencies through localized production and reduced logistics costs. The other notable transaction in this segment was the privatization of the Moscow-based Svoboda Cosmetics plant in which Buket Group supported by Moscow Industrial bank acquired 50% of the company for USD54 million. While some have surmised that the price was driven up due to the companys attractive real-estate portfolio, the business sees a signicant growth opportunity producing national cosmetic products and detergents that it sells directly or produces on behalf of large Western consumer products businesses.
Food and beverage

While the volume of deals remained broadly at, the value of M&A in the food and beverage segment increased signicantly to USD3.3 billion, driven by consolidation of positions in companies already acquired or by longer-term strategic considerations.
Consumer markets, retail and agriculture
Number of deals by sector in 20112012 2012

8 9
12
17 9
2011
4 9 15 16 16
The largest deal in the consumer markets, retail and agriculture sector during 2012 was the strategic tie-up of SABMiller and Anadolu Efes, in which SABMiller ceded ownership of its Russian and Ukrainian businesses in return for 24% of Efes. The aim of the deal is to strengthen Efes position across the region and, through this, better develop SABMillers international brands. As a highly consolidated market struggling with margin pressures and declining volumes, the deal is expected to generate cost synergies of at least USD120 million per annum and provide additional revenue synergies. Other notable deals in the segment included the strategic investment into Russian dairy farm operator Rusmoloko by Singaporean Olam International (USD75 million); Santa Bremor (Belarus) led consortiums acquisition of Russian Sea Group, a value added producer of seafood products (USD52 million); Nestles bolt-on acquisition of Korolevskaya Voda (USD50 million); nancial investor Russkie Fondys acquisition of a 46% stake in processed-cheese producer Karat (USD47 million) and Ladogas acquisition of Spanish winemaker Vinedos Del Camino Real and French alcohol distiller Earl Les Vignobles Reunis (USD 26 million).
Deal value by sector in 20112012 2012

22%12% 7% 9%
Retail
11% 6%
5% 20%
2011
6% 40% 49% 13%
Though the number of transactions in the retail segment more than doubled in 2012, the total value of M&A fell by more than 40% as the number of deals valued at less than USD100 million more than tripled, driven to a large extent by acquisitions of online retailers. Ozon.ru expanded its product offering through the acquisition of the fashion retailer, Sapato.ru, for USD100 million. Meanwhile, Digital Sky Technologies invested USD177 million in two separate transactions to build a 9% stake in Zalando, to support the German online shoe retailers European growth plans. Another notable deal in this space was the 51% acquisition of Sotmarket for USD50 million by the Russian venture capital rm, IQ One. The largest retail deal of 2012 saw Russias biggest mobile phone retailer, Euroset, become co-owned by VimpelCom and MegaFon after the latter acquired a 50% stake in the company from Mr. Alexander Mamut for USD1.1 billion. The deal should lead to synergies for both companies and help MegaFon to increase its penetration of the mobile market. Elsewhere, the Russian investment holding Haden paid USD60 million to acquire Ekrafarm, which it plans to integrate into its existing pharmacy retail network, while August Meyer and Dmitry Kostigyin bought a 40% stake in Obuv.com, the Moscow-based shoe retailer for USD25 million. Although the number of food retail deals doubled, the total value of M&A fell by more than 80% in 2012, with Billas bolt-on acquisition of Enkas Moscowbased Citystore for USD163 million, and Lentas strategic expansion into the key markets of Yaroslavl, Voronezh and Orenburg through the acquisition of four hypermarkets for USD77 million, the largest transactions. Whilst not included in our database, it is worth noting that Auchan signicantly expanded its existing retail network in Russia as part of the acquisition of 96 hypermarkets in Central Eastern Europe from Real for USD1.43 billion12.
Agriculture Consumer goods Food and beverage
Retail (food) Retail (non-food) Retail (online)
12
The deal was excluded from our database as no public information was available to separately value the Russian assets
Outlook
Russia is looking like a twin-track economy with growth in consumer spending, retail sales and wages anticipated at a time when industrial production and investments are slowing. Looking ahead, we expect further consolidation in the food retail segment particularly driven by bolt-on acquisitions of smaller, regional retail chains or attractive real-estate properties by a core group of leading Russian retailers (both multinational and domestic). With compelling valuations, an increasing number of projects in the market and rising interest in localized food production, agriculture will continue to attract interest from both strategic and nancial investors alike. Other consumer businesses will attract interest from local funds investing development capital or strategic players pursuing new markets or entry points into Russia; however, selective buying will be focused on core activities driven by underlying fundamentals. While consolidation will be led by domestic companies, we see renewed interest from multinationals that have become more active in their pursuit of growth in Russia, and we expect transaction volume within the Russian consumer space to increase signicantly in the next two to three years, albeit with moderate growth expected in 2013.
Total deal value: Total deal volume: Market share by value:
USD15.6 billion (+54%) 29 (-17%) 19% (2011: 15%)
Despite an overall decline in the number of deals during 2012, the value of M&A in the Russian nancial services sector increased to USD15.6 billion, driven principally by three major transactions, including two cross-border deals. Domestic activity accounted for almost 80% of M&A in the nancial services sector during 2012, up from two-thirds in the previous year. However, by value cross-border transactions increased from 13% to 58% of total largely as a result of the SPO of Sberbank and its acquisition of Denizbank, the only outbound deal in the year. Sberbanks acquisition of a 99.85% interest in the Turkish bank from Franco-Belgian banking group Dexia, continued its international expansion strategy following last years purchase of Volksbank International (Austria) and SLB Commercial Bank (Switzerland). The SPO of 7.58% of the governments stake in Sberbank, on the London and Moscow stock exchanges in September 2012 was the largest transaction in the nancial services sector, raising USD5.2 billion. This was Russias largest-ever privatization deal, the largest SPO in the EMEA region during the last two years, and one of the largest public offerings in the world in 2012. The offering, which was more than two times oversubscribed and rumored13 to have attracted interest from institutional investors including US private equity group TPG, George Soros, and China Investment Corp, reduced the governments stake to 50% plus one share. M&A in f nancial services, 20092012
18
Five inbound deals were completed in 2012 (2011: 7), although only one transaction was valued at over USD100 million. In July an investor group comprising of the US state-owned IFC and the UK state-owned EBRD acquired a 15% stake in Moscow Credit Bank for USD191 million (in equal shares).
100
15 75 12 9 6 3 0 15 1.7 2009 2.7 2010 10.1 2011 15.6 2012 27 35 29 25 50

Number of deals
Whilst domestic activity remained broadly at in 2012, with 23 deals announced (2011: 25), the value of these transactions declined by 27% compared to the prior year, and totaled USD6.5 billion. The largest of these deals resulted in Vnesheconombank, together with Gazprom, NPF Gazfond, Gaztek and Novntekh, acquiring a further 22.7% stake in Gazprombank through the conversion of its subordinated debt to equity. Sberbank also made progress with its strategy to penetrate new domestic business segments by acquiring a 70% stake in Moscow-based BNP Paribas Vostok, to develop retail lending at points of sale, and the acquisition of the Moscow-based insurance company Alliance Life. VTB, another state-owned bank, increased its interest in TransCreditBank to 99.6% through two separate transactions; the acquisition of a 21.8% stake from Russian Railways for USD641 million and a share issue by TransCreditBank equal to 3.25% of equity for USD250 million. VTBs purchase of TransCreditBank, in which it eventually plans to consolidate 100%, expands its market share in line with the banks strategic development plan.
Deal value, USDbln
Number of deals
13
Details of investors were not disclosed
Ten largest transactions in f nancial services in 2012

Target 1 2 3 4 5 6 7 8 9 10 Sberbank Denizbank AS Gazprombank JSC TransCreditBank OJSC NOMOS-BANK Khanty-Mansi Bank Absolut Bank Bank Rossiyskiy kredit TransCreditBank OJSC Credit Bank Of Moscow Sector Banking Banking Banking Banking Banking Banking Banking Banking Banking Banking Acquirer Investor group (SPO) Sberbank Vendor Bank of Russia Dexia SA % share acquired 7.6% 99.9% 22.7% 25.1% 19.9% 44.2% 99.0% 99.6% 3.2% 15.0% Value USDm 5,200 3,596 3,125 891 510 412 398 352 250 191 14,924 95.9%
Vnesheconombank and current shareholders (Gazprom; NPF n/a Gazfond; Gaztek; Novntekh) VTB Otkritie Financial Corporation JSC Ferrosplav Invest (ICT Group) Companies managing reserves of NPF Blagosostoyanie (owned by Russian Railways) Investor Group (6 private individuals) VTB EBRD and IFC Russian Railways PPF Group Government of Khanty-Mansyiskiy region KBC Group Unicor Management Company (Boris Ivanishvili) Rights issue Concern Rossium (Roman Avdeev)
Ten largest transactions total As a % of total nancial services deal value

5 7 3 1
2011
25 23
Ferrosplav Invest, which is controlled by East Group (a major shareholder of Nomos-Bank), acquired a 44.2% stake in Khanty-Mansiyskiy Bank for USD412 million, via an auction from the Khanty-Mansiysk autonomous region in a privatization process which lasted more than a year. As a result of this deal, Nomos-Bank increased its shareholding in Khanty-Mansiyskiy Bank to 95.5%, following its plan to consolidate 100%. At the same time, Otkritie Financial Corporation, the Russian banking group, acquired a 19.9% stake in Nomos-Bank from PPF Group in a stock swap transaction, valued at USD510 million. This deal is a strategic investment for Otkritie, which plans to consolidate 100% of NomosBank within the next two years as part of its drive to create the second-largest private bank in Russia. Having been on the market for some time, KBC Group of Belgium nally sold its Russian operation, Absolut Bank for USD398 million to a group of companies that manage the assets of Russias second-largest non-state pension fund, Blagosostoyanie. KBC paid almost three times this amount when it entered the Russian market by acquiring Absolut Bank in 2007. The transaction, which is subject to regulatory approval, continues the trend over the last two years of foreign banks leaving Russia due to capital pressure in their key markets. In 2012, Swedish-based Svenska Handelsbanken, Germanys Commerzbank Auslandsbanken, and Portigon (formerly WestLB) exited the Russian market.
Financial services
Outlook
We predict M&A activity to increase in 2013, driven by IPOs, including privatization, and capital requirements to support continued growth. However, companies will be watching markets closely given questions regarding price valuations, and ability of Russian equity markets to absorb the large number of offerings rumored. The government will continue with its long-term strategy to privatize stateowned banks, with VTB, Russias second largest bank, rumored to be considering a USD2 billion IPO in the spring. A number of large and mediumsized private banks and insurance companies are also actively considering IPOs. However, Promsvyazbank, one of Russias largest private banks, has delayed its planned IPO on the London and Moscow stock exchanges until further notice due to concerns regarding price valuations. Mid-sized banks, especially those focusing on retail business, need to raise capital to further expand their operations. Investors, including private equity funds, are showing interest in this high margin business model and we expect to see increased activity following Horizon Capital and Baring Vostoks USD40 million investment in Tinkoff Credit Systems Bank during 2012. State-owned institutional investors like EBRD are likely to continue investing into the Russian banking sector. In addition, last year, Vnesheconombank and the IFC established the Russian Bank Opportunity Fund with USD550 million of capital to invest in regional Russian banks. The trend of foreign banks leaving the Russian market is likely to continue, as many European banks are still preoccupied with restructuring measures and are looking for divestment opportunities in emerging markets in order to shore up business at home, and address with the upcoming challenges of Basel III. The Russian insurance sector has low penetration but high growth potential, and the government is committed to opening the market up to foreign capital and expertise. This coupled with the fact that European and US insurance markets are rather mature, and therefore unlikely to experience comparable growth, makes the market attractive to foreign investors. As such, we believe that M&A activity in the Russian insurance sector will pick up over the next 2-3 years, albeit that transaction values are likely to remain fairly low.
Total deal value: USD6.4 billion (-47%) Total deal volume: 33 (-47%) Market share by value: 8% (2011: 17%)
Commodity prices are a key driver of protability and, in turn, M&A activity in the metals and mining sector. The volatility and general decline in most commodity prices during 2012 led many global metals and mining companies to reassess their M&A and capital allocation strategies, and focus once again on cost optimization. The impact of these factors was also evident in Russia, where both the volume and value of M&A in the metals and mining sector declined by 47%. Historical trend in commodity prices, 31 December 2012 vs 31 December 2011
3,5% (6,5%) 4,8% 4,6% 7,1% (18,6%) (40,4%)
Aluminium Nickel Copper Iron ore Gold Steam coal Coking Coal
M&A in metals and mining, 20092012

25
100
In general M&A activity amongst the large integrated producers and mining companies, which have historically played a key role, remained subdued throughout 2012, as many of them lacked sufcient cash reserves or debt capacity to fund acquisitions given signicant capital expenditure programs that still required funding. Similar to 2011, there were not many large transactions only one exceeded USD1 billion in value. Deals were spread across several segments, although gold and fertilizer assets were the most actively targeted, accounting for more than 50% of all deals. Buyers also took the opportunity to consolidate existing shareholdings during 2012 through the acquisition of minority interests, which accounted for nearly a quarter of all transactions. While domestic activity continued to play a dominant role in the sector, there was a notable increase in inbound M&A during the year. A total of 9 deals with a combined value of USD949 million were announced, representing a 24% increase on the prior year, and accounting for 15% of the deal value in the metals and mining sector (2011: 6%). China accounted for 52% of all inbound investment during 2012.
Number of deals
20 62 15 10 24 5 0 4.2 2009 9.8 2010 9.8 2011 5.3 2012 7.8 40 2.3
75
50 1.2 33 25
Deal value, USDbln Fertilizer deals
Number of deals
Key drivers
Companies controlled by or otherwise linked to Mr. Roman Abramovich (Millhouse Capital, Evraz and Highland Gold Mining Ltd) accounted for approximately 40% of total deal value in the metals and mining sector. The largest deal of 2012 saw Millhouse Capital acquire a 4.9% stake in Norilsk Nickel from Interros and UC RUSAL for USD1.5 billion. Based on publicly available information, Millhouse Capital may opt to increase its stake up to 10%
Ten largest transactions in metals and mining in 2012

Target 1 2 3 4 5 6 7 OJSC MMC Norilsk Nickel JSC VSMPO-AVISMA Corporation Raspadskaya OJSC Polyus Gold International Ltd. Verkhnekamsk Potash Company OJSC Apatit JSC Kazakhaltyn MMC; Norox Mining Company Limited Vyksa Steel Works Polyus Gold International Ltd K+S Nitrogen GmbH Sector Production Nickel Production Titanium Mining - Coal Mining - Gold Fertilizer Fertilizer Mining - Gold Production Steel Mining - Gold Fertilizer Acquirer Millhouse Capital UK Ltd Gazprombank Evraz Group S.A. Chengdong Investment Corporation Vendor Interros/ UC RUSAL Russian Technologies Adroliv Investments Limited (by aquiring remaining 50% of Corber Enterprises Ltd.) Jenington International Inc. % share acquired 4.9% 45.4% 41.0% 5.0% n/a 26.7% 100.0% Value USDm 1,487 970 865 425 406 356 310
Vnesheconombank (VEB), the Eurasian Development Bank (EDB) AKRON Group and ZAO Raiffeisenbank PhosAgro OJSC Altyngroup Holdings Korltolt Felelssg Trsasg (INTER RAO UES OJSC) ZAO United Metallurgical Company VTB MCC EuroChem CJSC FAUGI - Federal Agency for State Property Management Polyus Gold International Ltd and Romanshorn LC AG Several minority shareholders (likely public traded) Jenington International Inc. K+S Aktiengesellschaft
8 9 10
12.3% 2.5% 100.0%
278 211 182 5,490 85.1%
Ten largest transactions total As a % of total metals and mining deal value
5 9
through open market purchases. The acquisition was viewed positively by the market as Norilsk Nickels share price increased by 6% on the day following the announcement fuelled by hopes that this deal will help to resolve the protracted conict between its largest shareholders Oleg Deripaska (UC RUSAL) and Vladimir Potanin (Interros). In April, the vertically integrated steel producer, Evraz, indirectly acquired an additional 41% stake in the Russian coal miner Raspadskaya for USD865 million, concluding a deal that was postponed in 2011. The deal, which increases Evrazs stake in Raspadskaya to 82%, is intended to make the steel producer selfsufcient in terms of its coking coal requirements. At the other end of the scale, Highland Gold Mining company acquired LLC Klen, which owns a gold and silver deposit in Russias Far Eastern Chukotka region, for USD69 million.
15 10
2011
38
18
The Russian government privatized stakes in two mining assets during 2012; Russian Technologies sold a 45.4% stake in the titanium producer VSMPOAvisma to its management team and Gazprombank for USD970 million, while Phosagro increased its stake in Apatit to 77.6% by acquiring a 26.7% stake from FAUGI, the agency responsible for management of State property, for USD356 million. Rising fertilizer prices were a key driver of M&A activity. Acron sold a 38% stake in its subsidiary Verkhnekamsk Potash Company to a group of banks comprising state-owned Vnesheconombank, Eurasian Development Bank and Raiffeisen Bank for USD406 million, in order to raise funding to commence development of Verkhnekamsk potash deposit in the Perm territory. Acron also completed the acquisition of a 12% stake in the listed Polish fertilizer and chemicals company, Zaklady Azotowe w Tarnowie-Moscicach, for USD102 million.
Metals and mining
Elsewhere, Eurochem also headed west by acquiring K+S Nitrogen, a Germanbased manufacturer of fertilizers from K+S Aktiengesellschaft for USD182 million. The price of gold increased by around 6% in 2012, as investors continued to view the commodity as a safe heaven, which in-turn supported M&A. Jenington International sold a 7.5% stake in Polyus Gold, Russias largest gold producer, in two separate transactions in order to reduce debt and nance existing development projects. Chengdong Investment Corporation, a Chinese investment company with interests in gold, acquired a 5% stake in Polyus Gold for USD425 million, while VTB acquired a 2.5% stake for USD211 million. In December 2012, following the cancellation of a deal with AltynGroup, Polyus Gold announced it had agreed to sell its Kazakhstan assets, comprising Kazakhaltyn MMC and Norox Mining Company, to a consortium of offshore investors for USD310 million. The ultimate shareholders of the consortium have not been announced and the deal is subject to approval of the Kazakhstan government. During 2012, Nord Gold announced its intention to consolidate 100% of Canadian High River Gold Mines after increasing its interest in the company to 97.9% by acquiring a 22.9% stake for USD176 million. Meanwhile GeoProMining, the diversied metals holding company, sold its Georgian copper-gold mining companies Madneuli and Quartzite to Capital Group for USD120 million, following its decision to focus its regional growth strategy on its assets in Armenia and Russia. United Metallurgical Company (OMK) completed the largest transaction of a minority interest by acquiring the remaining 12.3% of Vyksa steel works, one of the major Russian pipe producers, which it didnt already own for USD278 million.
Outlook
Overall, we expect limited growth in M&A activity in the Russian metals and mining sector during 2013. Commodity price forecasts would suggest that activity is likely to focus on nickel, aluminum and coal producers, while iron ore, steel and copper producers will probably be more focused on realizing further operational efciencies and potentially the disposal of non-core assets. We expect to see continuing interest from Chinese companies looking to enter the Russian market, which given the improving global outlook may potentially translate into an increased number of deals within the mining sector. However, restrictions imposed on the ownership of strategic assets (including resource deposits) by the Russian government are likely to continue to be an obstacle for foreign investors. The Russian government and State owned enterprises will continue to play an important role in M&A activity in the sector during 2013, especially as the privatization agenda is expected to gather pace; a number of large deals, including the privatization of Alrosa, are expected. We also anticipate that metals and mining players will continue to develop their infrastructure assets, including ports, warehousing facilities, and trading businesses in order to optimize supply chains and capture a greater share of downstream value. This trend is supported by the recently announced potential acquisition of Murmansk port by Eurochem. We also believe that there is likely to be an increase in the level of outbound activity in 2013 in relation to infrastructure assets.
Consensus price forecast (3 year)
15,5% 24,6% (4,5%) (3,8%) (7,7%) 9,7% 12,7%
Aluminium Nickel Copper Iron ore Gold Steam coal Coking Coal
Rosnefts USD56 billion acquisition of TNK-BP was the largest deal in Russia in 2012, and the largest in the countrys history of M&A. The sheer scale of this transaction has a distortive impact when analyzing trends in M&A, and we have therefore excluded it from the analysis of the oil and gas sector to provide a more meaningful comparison with prior years. Brent spot price FOB, 20092012
140 120
Dollars per barrel
100 80 60 40 20 0 Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
M&A in oil and gas, 20092012

80 70 60 50
100 56.0 75
The total value of transactions announced in 2012 increased by 22% to USD14.2 billion, while the number of deals more than doubled. The increase in deal value was driven by transactions valued in excess of USD100 million, while the volume of activity was, to a large extent, driven by deals below this value, continuing the trend observed in the Russian oil and gas sector over the last three years. M&A activity in the sector during 2012 was characterized by consolidation of the local market by major Russian oil and gas companies, which accounted for more than two thirds of deal value and volume. A small number of outbound transactions involving Gazprom, LUKOIL, Rosneft and Gunvor, made up one third of deal value. Inbound M&A, which accounted for almost half of deal value and deal volume in 2011, was virtually non-existent in 2012, with ve deals totaling USD37 million.
40 30 20 10 0 23.0 2009 20.3 2010 11.6 2011 30 24 18
46
50
Number of deals
25
Domestic activity
14.2 2012 0
Deal value, USDbln Rosneft/TNK-BP
Number of deals
The largest deal in the sector was LUKOILs acquisition of three oil elds in the Khanty-Mansiysk Autonomous District, including the relatively large Imilorskoye elds, via a State auction for USD1.7 billion. The acquisition is expected to increase LUKOILs production capacity by 8-9 million tons per annum by 2020, although it is likely that LUKOIL may consider creating a strategic alliance to develop these elds.
Ten largest transactions in oil and gas in 2012

Target 1 2 3 4 5 6 7 8 9 10 Imilorskoe, West-Imilorskoe and Istochnoe oilelds WINGAS, WIEH, WIEE, Astora and Wintershall Noordzee B.V. ZAO Northgas NGK Itera Corporacion Venezolana del Petroleo Geotransgaz, Urengoy Gas Company Petroplus Ingolstadt renery ISAB S.R.L. Petroplus Antwerp renery OAO Novosibirskneftegaz/ OAO Severoyeneftegaz Ten largest transactions total(1) As a % of total oil and gas deal value(1)
Note: (1) Excluding Rosneft/ TNK-BP
Sector Upstream Marketing Upstream Upstream Upstream Upstream Rening Rening Rening Upstream
Acquirer OOO LUKOIL-West Siberia Gazprom OAO Novatek OAO Rosneft Rosneft Alrosa Gunvor International B.V. NK LUKOIL OAO Gunvor International B.V. Undisclosed investor group
Vendor State auction BASF SE R.E.D.I. Holdings (Mr. Farkhad Akhmedov) Itera Holdings Ltd Petrleos de Venezuela, S.A. VTB Capital Petroplus Holdings AG ERG SpA Petroplus Rening Antwerp NV TNK-BP
% share acquired n/a 50.0% 49.0% 51.0% 40.0% 90.0% 100.0% 20.0% 100.0% 71.1% & 100.0%
Value USDm 1,650 1,500 1,375 1,316 1,100 1,037 800 524 500 450 10,252 72.3%

9 3 6 5
In November, Novatek announced the acquisition of a 49% stake in Northgas from R.E.D.I. Holdings, owned by businessman Mr. Farkhad Achmedov, for USD1.4 billion. Management expect synergies from the acquisition as Northgass production areas are located close to Novateks production, transportation and renery assets in the Yamalo-Nenets region. Rosneft and ITERA Group combined their gas assets as part of a strategic cooperation agreement to create a JV to produce and sell gas. Rosneft obtained a 51% in the JV in exchange for 100% of Kynsko-Chaselskoye Neftegaz which owns the Kynsko-Chaselsk license block, and USD173.4 million in cash. The new JVs consolidated 2P14 reserves will total 372.4 billion cubic meters of gas and 15.7 million tons of liquid hydrocarbons. The total deal value was estimated at USD1.3 billion. Alrosa Group consolidated its ownership in Geotransgaz and Urengoy Gas Company to 100% by repurchasing 90% stakes in both companies from VTB. Alrosa sold stakes in both entities which are involved in exploration and development of gas reserves in Yamalo-Nenets Autonomous District, to VTB in 2009 to reduce its debt burden. In August 2012, TNK-BP sold 71.09% of Novosibirskneftegaz and 100% of Severnoeneftegaz, two upstream production companies in Eastern Siberia, to an undisclosed group of specialist Russian and foreign investors for USD450 million. The divestment was in line with TNK-BPs strategy to optimize its asset portfolio and improve per-barrel efciency. It is rumored that Russneft became the ultimate beneciary of Novosibirskneftegaz and Severnoeneftegaz.
2011
34
14
Proven and probable reserves 2013 ZAO KPMG. All rights reserved.
Oil and gas
Cross-border activity
In November, Gazprom announced an asset swap that will see it take control of its WINGAS, WIEH and WIEE 50:50 gas trading JVs with BASF, and WINGASs storage subsidiary, Astora, which comprise the largest gas depot in Europe. In addition, Gazprom will also receive a 50% stake in the North Sea gas exploration and development company Wintershall Noordzee BV. In return, BASFs Wintershall will receive 25% plus one share in Gazproms two high prole blocks of the Achimov formation of the Urengoi natural gas and condensate eld, with an option to increase its stake to 50%. Gazprom and BASF have an existing 50:50 JV, Achimgaz, which is involved in development and production of gas on the earlier discovered blocks of the Achimov formation. The deal, which is subject to regulatory approval, is estimated to be valued at USD1.5 billion. In December, Rosneft announced it had entered into an agreement with La Corporacin Venezolana del Petrleo S.A (CVP), a subsidiary of Petrleos de Venezuela S.A. (PdVSA) to create a JV for the development of the Carabobo-2 block in Venezuelas Orinoco River basin. Rosneft will acquire a 40% interest in the JV for USD1.1 billion. Gunvor Group, the energy trader, in which Mr. Gennady Timchenko is one of the key benecial owners, announced three acquisitions in Europe during 2012 which analysts estimated totaled USD1.6 billion. In March and May, Gunvor acquired the Antwerp and Ingolstadt reneries and petroleum retail chain of Petroplus Holding which went bankrupt in 2011. These acquisitions, together with the acquisition of a 10% stake in the TransAlpine Pipeline in October reect Gunvors strategy to form a vertically integrated oil and gas company with strong presence in Europe. LUKOIL announced in September that it had increased its interest in its IASB Renery JV with Italys ERG SpA to 80%, through the acquisition of further 20% stake from the Italian energy group for USD524 million. Since the acquisition it has been rumored that LUKOIL plans to consolidate 100% ownership of the renery in 2013-2014 by acquiring ERG SpAs remaining 20% interest in the JV.
Outlook
Russias hydrocarbon reserves are some of the largest in the world, and many international oil majors are under pressure to nd opportunities to invest given that it is one of the most politically stable oil and gas basins. However, developed reserves are signicantly depleted and existing greeneld opportunities are often in remote locations, which require signicant upfront infrastructure investment. This combined with the perceived risks of doing business in Russia, and sometimes prohibitive valuations mean that deals take time to negotiate. Despite this and the low level of inbound M&A in 2012, international oil companies remain interested in partnering with Russian majors on large scale exploration and development opportunities, and we anticipate an increase in inbound activity during 2013. As the Russian majors have developed, the sector as a whole has evolved, costs have increased and taxation has become more burdensome, and as a result domestic players continue to look closely at optimizing their portfolios. We expect to see some continued divestment of non-core assets which are suboptimal to the overall portfolio and strategy of Russian majors. LUKOIL, Rosneft and Gazprom will continue to look for opportunistic foreign assets to acquire in order to capture value chain links beyond Russias borders, potentially in upstream assets in Africa and Latin American, as well as certain European downstream assets. We also anticipate further consolidation of the Russian oil and gas market due to the number of relatively small assets, including those which have been divested by the Russian oil majors. Given the perceived abundance of such opportunities, we believe that the sector is ripe for a few consolidators to roll up these assets to create larger oil and gas companies.
Total deal value: USD4.3 billion (-27%) Total deal volume: 23 (+77%) Market share by value: 5% (2011: 9%)
During 2012, M&A activity in the Russian power and utilities sector continued the trend of consolidation of electricity generating and distribution assets by Stateowned companies, and in particular INTER RAO UES. Interest of domestic and foreign private investors in the sector remains limited due to the pace of market reform and inconsistent tariff regulation which deters potential strategic investors. Liberalization of the power market was the primary objective of the structural reform program, adopted by the government in July 2001. RAB methodology15, which was intended to secure returns on investment through price tariffs, was not universally introduced across the sector. In January 2012, the government announced that producers had agreed to hold energy prices at the December 2011 level by deferring tariff increases for six months, until after the presidential elections. Furthermore, the government also revised RAB methodology during 2012, resulting in a reduction to the return to investors. Such unexpected changes in tariff regulation, and revision of RAB, have decreased the overall attractiveness of the industry to investors, and as a result M&A activity. Similar to last year, M&A in the sector was predominately restricted to domestic activity, with limited cross-border deals. In 2012, the total value of M&A decreased by 27% to USD4.3 billion, despite a 77% increase in the number of transactions this reects the overall increase in the number of deals valued at less than USD100 million. M&A in power and utilities, 20092012
10
Key drivers
40
39
8 6 4 2 0 5 0.1 2009 5.6 2010 5.9 2011 4.3 2012 13 23
30
20
INTER RAO UES was the most active participant in M&A in the power and utilities sector during 2012, announcing nine transactions with a combined value of USD3.7 billion, equal to 77% of total deal value. During 2012, INTER RAO UES successfully completed the reorganization of power generating assets by acquiring the remaining stakes which it did not already own in Bashkirenergo, OGK-1, OGK-3 and Bashenergoactiv, and forming a separate subsidiary company to hold its generating assets. The largest deal announced in the sector will result in INTER RAO UES disposing of its 40% stake in the electricity generator, Irkutskenergo which is majority owned by EuroSibEnergo, for USD1 billion. In July, it was announced that Rosneftgaz had received government approval for the acquisition of INTER RAO UESs stake in Irkutskenergo, although the deal is not expected to be completed until sometime in 2013. In March, Rusenergo Fund led a consortium of investors including Russia Direct Investment Fund (RDIF), Macquarie-Renaissance Infrastructure Fund (MRIF) and AGC Equity Partners, in the acquisition of a 26.4% stake in the power generation company Enel OGK-5 from INTER RAO UES for USD750 million. Rusenergo and
Number of deals
10
Deal value, USDbln
Number of deals
15
RAB or Regulatory Asset Base methodology is a formula for tariff setting that includes a return on investment as an investment premium into the tariff
Ten largest transactions in power and utilities in 2012

Target 1 2 3 4 JSC Irkutskenergo OJSC Bashkirenergo OJSC Enel OGK-5 JSC OGK-1 Sector Power Generation Power Generation Power Generation Power Generation Acquirer OJSC Rosneftegaz INTER RAO UES Investor Group INTER RAO UES Vendor INTER RAO UES OAO Sistema-Invest, subsidiary of AFK Sistema INTER RAO UES LUKOIL OAO Anatoliy Motylev (Private Investor); Boris Khait (Private Investor); Vladimir Faevorich (Private Investor); Boris Pastukhov (Private Investor); Georgy Gens (Private Investor); Viktor Lukoyanov (Private Investor) AFK Sistema Holding MRSK Neft Aktiv SU-155 AEI (Turkey) % share acquired 40.0% 74.8% 26.4% 25.0% Value USDm 1,000 871 750 399
JSC OGK-3
Power Generation
INTER RAO UES
18.0%
347
6 7 8 9 10
Bashenergoaktiv Holding MRSK OJSC Kubanenergo GorUpravDom (and boiler houses in Odintsovo and Balashikha) Trakya Elektrik Uretim Ve Ticaret A.S.
Power Generation Power Distibution Power Distibution Heat Production Power Generation
INTER RAO UES Neft Aktiv JSC Tyumenenergo Gorodskie Teplosistemy ZAO INTER RAO UES
25.0% 3.2% 28.0% 100.0% 100.0%
167 165 164 101 68 4,032 93.3%
Ten largest transactions total As a % of total power and utilities deal value

3 3
RDIF reportedly contributed half of the funds for the deal, which was one of the largest private equity transactions in the Russian power and utilities sector. The largest of the three outbound deals in the year were INTER RAO UESs acquisition of a 90% stake in Trakya Elektrik Uretim Ve Ticaret A.S., which owns a Turkish gas red power plant, for USD68 million and the acquisition of a 40 megawatt wind farm in northern Bulgaria by LUKERG Renew, a JV owned by LUKOIL and Italys ERG SpA, for USD65 million.
10 20
2011
State-owned Rosatom, and its subsidiary Atomenergoprom, continue to play an active role in M&A in the sector and reportedly acquired several assets during 2012. However, details of these deals were not made public and, as such, are not included in our database. We also observed an increase in M&A in support industries dedicated to the power and utilities sector, such as engineering and construction, and research and development although the value of such deals were quite small. The planned merger of Gazprom Energoholding and IES Holding, which was one of the most widely rumored deals of 2012, was eventually cancelled as the parties could not agree terms. Gazprom Energoholding, controlled by Gazprom, owns TGK-1, Mosenergo and OGK-2, while IES Holding, owned by Mr. Viktor Vekselbergs Renova Group, controls TGK-5, TGK-6, TGK-7 and TGK-9. Had the proposed merger gone ahead, it would have created one of the largest generating companies in Russia, by installed capacity.
Power and utilities
Outlook
Overall we do not anticipate any signicant change in the value of M&A in the Russian power and utilities sector during 2013, which has amounted to USD5-6 billion per annum over the last three years. No signicant market reforms or easing of tariff restrictions are anticipated during the coming year. As such, we expect involvement of the private sector to remain subdued, with some private investors looking to exit the market due to diminishing returns. Consolidation of assets by State-controlled companies will continue. We expect Gazprom Energoholding to resume discussions with IES regarding the acquisition of certain power generating assets, rather than a merger of the two. Market intelligence also suggests that Rosneftegaz, the parent of Rosneft, could become one of the largest energy holdings by acquiring stakes in RusHydro and Inter RAO UES. The planned merger of MRSK Holding (the interregional distribution grid company) and the Federal Grid Company (FSK UES, which operates electricity transmission grids) to create Russian Grids, is expected to be completed by the end of June 2013. We anticipate that the merger is likely to drive further consolidation of transmission, distribution and retail networks during 2013. In addition, certain assets of MRSK are also rumored to be included on the governments 2013 privatization agenda. The need for modernization within the sector and international expertise required for such programs, may lead the government to ease regulation in order to attract investors. It is anticipated that the government will broaden the current list of DPM16 projects, in order to increase the attractiveness of the generating industry for investment. Steam powered heat plants are likely to be upgraded to combined cycle gas turbines to increase efciency, reduce costs and increase returns which may subsequently attract investors. INTER RAO UES, RusHydro and Rosatom temporarily put their international expansion plans on hold during 2012, given the challenges in the domestic market and global economic uncertainty. We believe that with generally improving sentiment in global markets Russian companies will continue to monitor overseas opportunities and invest where the fundamentals and investment return (e.g. IRR) stack-up.
16
DPM or Capacity Supply Agreement a measure that was introduced by the government to guarantee payments for newly installed capacity as part of the privatization process
Total deal value: USD6.5 billion (-4%) Total deal volume: 65 (0%) Market share by value: 8% (2011: 10%)
M&A activity in the Russian real estate and construction sector was relatively static in 2012, albeit at a high level; deal volumes remained at while the value of transactions fell marginally to USD6.5 billion. Domestic M&A increased by 26% to USD5.5 billion, with volumes up by 6% (56 deals), whereas inbound transactions declined by 25% with deal value falling 60% to USD968 million. The slowdown in the Russian economy, and continued uncertainty globally, led investors to take a more cautious approach in 2012. There was an increased focus on the developed markets of Moscow and St. Petersburg during the year, with international players continuing to prefer high-quality properties. Similar to 2011, there was no outbound M&A in the sector. In general, investors prefer operating properties to development projects, given the cash ows generated by the lease. Investors are adverse to the high risks associated with real estate projects at the development stage, and banks are still not inclined to nance projects in the early stages. Experience of the 2008 crisis showed that commercial properties with a good location and high-quality tenants typically enjoy stable cash ows, even during in an economic downturn, and are therefore desirable investment opportunities. Debt for renancing or acquiring buildings is currently almost only available from the Russian State-controlled banks, such as Sberbank, VTB, Vnesheconombank and Gazprombank. Financing for new construction remains limited and is only available for large-scale projects of State importance. This reects the perceived risk prole of the sector, uncertainty regarding tenancy demand and broader risk perception of doing business in Russia. O1 Properties was the largest investor in the sector, with four deals worth USD1.8 billion in the ofce segment, and all in line with the companys strategy of investing into prime class17 properties. BIN Group, which acquired Unicors real estate, ofce, hotel and warehouse portfolio for a total of USD983 million, was the second largest investor in 2012. The real estate and construction sector has historically been a focus business area for BIN Bank and other companies of the group. Mr. Bidzina Ivanishvili, the benecial owner of Unicor sold his Russian assets to BIN in order to participate in the 2012 Georgian parliamentary elections. Like the overall level of investment in the sector, yields also remained relatively stable by comparison to 2011. The ofce segment demonstrated minimum yields of 8.5%-9%, the retail segment slightly higher at 9-10% and the warehouse segment the highest at 11-12%.
M&A in real estate and construction, 20092012

12
100
10 8 6 32 4 25 2 0 2.0 2009 4.4 2010 6.8 2011 6.5 2012 0 47 65 65 75

Number of deals
50
Deal value, USDbln
Number of deals
17
A and B rated properties
Ten largest transactions in real estate and construction in 2012

Target 1 2 3 4 5 6 7 8 9 10 White Square Business Centre Garden Quarters, Summit, InterContinental Moscow Tverskaya, Lux Hotel and RTI Kauchuk Ducat Place III Silver City Business Center Metropol Moscow Hotel Golden Babylon Rostokino AB Krasnaya Polyana Arbat Square Business Center Ozerkovskaya Complex Pushkino logistic park Sector Ofce Residential, Ofce, Hotel, Hotel and Warehouse Ofce Ofce Hotel Retail Hotel Ofce Ofce Warehouse Acquirer O1 Properties Gruppa BIN O1 Properties O1 Properties Okhotnyi ryad Deluxe Immonanz Group Sberbank Capital Condential AFI Development Padastro Holdings Ltd Vendor AIG, Lincoln, VTB Capital Unikor (beneciary B. Ivanishvili) Hines Global REIT Evans Randall Moscow government Patero Mahomed Bilalov Zhilrekonstruktsiya Super Passion Ltd PLP Holding GmbH % share acquired 100.0% 100.0% 100.0% 100.0% 100.0% 50.0% 28.3% n/a 100.0% 100.0% Value USDm 1,000 983 360 333 273 250 238 230 230 215 4,111 63.2%
Ten largest transactions total As a % of total real estate and construction deal value

9 13
Ofce
The ofce segment attracted the largest share of investment with 17 deals totaling USD3.4 billion; all of which were in Moscow and involved prime class properties. O1 Properties announced four deals in the ofce space during 2012. The acquisition of the White Square ofce complex will provide its vendors with a protable exit, based on its estimated value of USD0.7 billion when VTB Capital acquired its stake in May 2011. Ducat Place III was sold by its developer, Hines Global REIT, to raise funds to nance future development projects, while Evans Randall reportedly made a 44% return on the disposal of Silver City Business Centre for USD333 million. O1 also acquired the disused Bolshevik factory from Kraft Foods for USD73 million. Only 6% of properties were purchased for the acquirers own needs, including the Paskal ofce by Alfa-Bank and Menger ofce by Raiffeisen Bank, both in the Nagatino i-Land complex. International investors made four acquisitions which totaled almost USD0.5 billion the largest being the acquisition of the Four Winds Ofce Complex for USD208 million by Capricornus Investments, which is reputedly owned by Mr. Roman Abramovich.
2011
52 56
Real estate and construction
Number of deals by sector in 20112012 2012

8 1 11 26 15 11
Hotels
Hotels attracted the second largest share of investment, with 13 deals valued at USD1.1 billion, of which around 70% relates to high quality facilities in Moscow such as the Hotel Metropol and Radisson Slavyanskaya Hotel, which were sold by the Moscow Government as part of its non-core asset disposal program. Meanwhile, Sberbank Capital increased its stake in the AB Krasnaya Polyana project in Sochi to an undisclosed majority following the acquisition of a further 28.3% stake for USD238 million. Five hotels of lesser status were acquired in the cities of Saint Petersburg, Rostov-on-Don, Nizhniy Novgorod and Irkutsk at a total cost of USD79 million. The relatively low level of regional activity is explained by the lack of good facilities and relatively high number of deals closed with major hotels in previous years. Hotels were the only segment within the real estate and construction sector not to attract inbound investment during 2012; however, international players continue to evaluate opportunities to enter or expand in the Russian hospitality market.
2011
7
13
9 17
Deal value by sector in 20112012 2012

13% 36% 8%
6%
4% 2% 16% 18%
Retail
While the level of activity in the retail segment increased by over a third, to 15 deals, the value of investment declined by almost two thirds to USD848 million. The segment was boosted in 2011 by three deals the acquisitions of the Galeria, Gorbushkin Dvor and Filion shopping malls with a combined value of USD1.5 billion. Investors continue to prefer good quality operating properties in Moscow, Saint Petersburg and cities with populations of over one million. Deals in Moscow and St. Petersburg accounted for over three quarters of investment during 2012, including the only major inbound transaction; the acquisition of a 50% stake in the Golden Babylon Rostokino shopping center by Immonanz Group from Patero-Development for USD250 million, in line with the companys retail focused strategy.
2011
27% 17% 53%
Construction Hotel Office
Real estate Retail Warehouse
Warehouses
There were eight transactions in the warehouse segment during 2012 with a combined value of USD387 million, more than half of which related to the acquisition of the Pushkino Logistic Park by Padastro Holdings Ltd (USD215 million). The main reason for the low level of investment is the lack of investment grade property. As in the ofce segment, all the recorded deals were made in Moscow and the Moscow region. PNK Group completed the sale of terminals at its Vnukovo Warehouse Park to Magnolia, Tsentr Obuv and PRV Group for a total consideration of USD127 million. The buyers entered these transactions to expand their own warehouse facilities, while PNK Group continued its strategy of exiting its construction projects.
Real estate and construction

Investments into real estate and construction companies totaled USD769 million, including BIN Groups acquisition of the Garden Quarters complex for USD445 million. Of the remaining 11 deals in this segment, the largest was the sale of a 97% stake in the construction company, GVSU Centre, by Sberbank to ZAO UK Razvitiye for USD172 million. Razvitiye intends to use the acquisition as a platform to expand its construction business.
Outlook
Overall we expect M&A activity in the real estate and construction sector to remain relatively stable in 2013 despite some large deals which are due to close in the year. Morgan Stanley Real Estate Fund Investing (MSREI) nalized the USD1.2 billion acquisition of the Metropolis shopping mall for an estimated USD1.2 billion18 in February 2013 and Kaspersky Lab is expected to complete the acquisition of the Olympia Park business center for an estimated USD350milllion during the year. We anticipate that yields will hover around current levels in 2013. Domestic investors are again expected to take a dominant position in the market, although the share of total transaction volume may decrease as international investors consider acquisitions in Russia to be a good alternative to Europe. High-quality properties in excellent locations generating steady income will continue to enjoy the greatest demand. A number of developers have announced plans for new warehouse projects in 2013-2014, which, given the current lack of supply, should promote M&A activity in the segment. A lack of high quality stock in the Russian regional centers will mean that Moscow and St. Petersburg property continues to hold the most interest for investors. Investment activity in the hotel segment will mostly be determined by developers plans for the construction of new properties. In coming years we expect an increase in investment activity in the host-cities of the FIFA 2018 World Cup, and especially hotels, sports and transport infrastructure. However, given the one-off nature of the event, project economics and inherent risks, we believe that the majority of investors will be domestic players. Retail developers regional expansion plans and an economic upturn may boost regional investment interest in the medium to long term. However, we expect investment activity in the regions to remain low in the short term due to the continued shortage of investment quality assets.
18
Actual deal value was not disclosed
Total deal value: USD10.1 billion (+66%) Total deal volume: 34 (-31%) Market share by value: 12% (2011: 9%)
The volume of transactions in the Russian transport, logistics and infrastructure sector fell by 31% in 2012, to 34 deals, driven solely by a reduction in domestic activity. The number of cross-border activity remained stable, with seven inbound and one outbound deal during the year. Nonetheless, the total value of deals increased by 65% to USD10.1 billion, driven by the ongoing privatization of railway and seaport assets. While the range of the deal sizes remains extremely broad, there was a notable increase in the average deal size during 2012. In 2011, the average deal was valued at USD45 million19, with 88% of all deals being valued at less than USD100 million. This compared to an average deal size of just over USD230 million20 in 2012 as deals valued at more than USD250 million but less than USD1 billion accounted for 38% of total volume, and contributed USD6.4 billion in deal value more than the whole sector generated in 2011.
Key drivers
The largest transaction in 2012 was the privatization of the remaining 25% stake in Freight One which was acquired by Independent Transport Company, a subsidiary of NLMK for USD1.6 billion. The State also auctioned off stakes in a number of infrastructure assets as part of the 2012 privatization program. In particular, SGTrans, a Moscow-based provider of gas transportation services, was acquired by AFK Sistema for USD734 million, and Mechel-Trans (together with its associates) acquired a 73% stake in the Vanino Commercial Sea Port for USD501 million, while SUEK acquired a 25% stake in the Murmansk Commercial Sea Port for USD100 million. The only outbound transaction during the year was Russian Railways acquisition of a 75% stake in GEFCO, the French-based transport and logistics company, for USD1 billion from Peugeot-Citroen SA. Some key Russian players restructured shareholdings and further consolidated the transport logistics segment. In May, NefteTransServis (NTS) acquired Transgarant, the rail transportation company, from Far Eastern Shipping Company (FESCO) for USD714 million, subsequent to which, Summa Group acquired FESCO for USD938 million. In August, NTS acquired EvrazTrans from Evraz for USD300 million while Globaltrans Investment acquired Metalloinvesttrans and MMK-Trans, the captive freight rail operators of Metalloinvest and MMK Group for USD540 million and USD325 million respectively. There were a number of key deals in the seaport sector, apart from the privatizations of the Vanino and Murmansk commercial sea ports. Maersk, one of the leading international shipping companies, acquired a 37.5% stake in Global Ports for USD863 million. United Shipbuilding Corporation, a Russian State-owned company, acquired a 75.8% interest in Northern Shipyard, a military shipbuilder, for USD385 million. In October, the Ukrainian Kernel Group, together with a subsidiary of Glencore International, acquired the deep water grain
M&A in transport, logistics and infrastructure, 20092012

10
70 60 49 34
8 6 4 2 0 10 0.5 2009 12 3.2 2010
50 40 30 20 10
Number of deals
6.1 2011
10.1 2012
Deal value, USDbln
Number of deals
19 20
Excluding the USD4 billion privatization of 75% of Freight One Excluding the two deals during the year valued in excess of USD1 billion
Ten largest transactions in transport, logistics and infrastructure in 2012

Target 1 2 3 4 5 6 7 8 9 10 JSC Freight One Gefco SA FESCO PLC Global Ports Investments Plc JSC SG-trans Transgarant LLC Metalloinvesttrans Vanino Commercial Sea Port JSC Shipbuilding plant Severnaya Verf MMK-Trans Ten largest transactions total As a % of total transport, logistics and infrastructure deal value Sector Freight / transport services Freight / transport services Freight / transport services Freight / transport services Freight / transport services Freight / transport services Freight / transport services Port Shipping Freight / transport services Acquirer Vladimir Lisin (Private Investor) Vendor Russian Railways OJSC % share acquired 25.0% 75.0% 56.0% 37.5% 100.0% 100.0% 100.0% 55.0% 75.8% 100.0% Value USDm 1,616 1,036 938 863 734 714 540 501 385 325 7,652 75.8%
JSC Russian Railways PSA Peugeot-Citroen SA (RZD) Summa Group APM Terminals Management B. V. AFK Sistema NTS Industrial Investors Transportation Investments Holding Limited Government of Russian Federation Far Eastern Shipping Company
Globaltrans Investment Metalloinvest Management Company LLC PLC OAO Mechel OSK Government of Russian Federation Central Bank of Russia
Globaltrans Investment OJSC MMK Group PLC

7 7 1 1
export terminal in Tampa Port, Russia, from EFKO Group for USD265 million. Global Ports also consolidated its interest in the Russian container terminal, Vostochnaya Stevedoring Company to 100% through the acquisition of the 25% stake held by DP World Limited for USD230 million. In the aviation industry, Sheremetyevo International Airport (MASh) acquired Terminal, the Russia based operator of Terminal D at Sheremetyevo, from Aeroot, Vnesheconombank and VTB for USD283 million, in the form of MASh shares. MASh, which was formerly 100% owned by the Russian government, has been valued at USD1.7 billion, and the transaction will enable the partial privatization of the company.
2011
41
26
Elsewhere, Changi Airports International, the Singapore-based airport operator, and Sberbank agreed to acquire a 50% stake in airports in the Krasnodar region from Basic Element for a minimum consideration of USD250m. Basic Element will contribute its shares in the airports of Sochi, Krasnodar, Anapa and Gelendzhik, with an asset value of USD500m into a new holding company. Basic Element will hold 50% plus one share in the new entity, Changi Airports 30%, and Sberbank the remaining 20%. This deal demonstrates the continued interest of foreign investors in the Russian aviation sector, and follows the participation of Germanys Fraport in Pulkovo International Airport under a concession arrangement.
Transport, logistics and infrastructure
Outlook
M&A activity in the transport, logistics and infrastructure sector is expected to continue to be driven by privatization during 2013, due to the need to attract private investment to develop and modernize seaports, airports and transport logistics infrastructure. A number of Russias major stevedoring, airport and rail freight operators are on the governments privatization program for 2013-2016. The public offering of the shipping company Sovkomot, has been rumored for the Russian market in 2013, and Russian Railways is said to be considering the sale of a 25% stake in Aeroexpress to Transgroup AS. Consolidation, through both vertical and horizontal integration, and formation of conglomerates, is another trend visible in the transport and logistics sector, driven by further economies of scale, synergy opportunities, and supply chain optimization. The need to meet fulllment expectations of international companies will drive industry players to improve quality, leading to increased divestments and restructuring of business models. Public Private Partnership (PPP) activity in transport infrastructure is likely to gain momentum as the pressure to reform restrictive federal law 115 On concession agreements mounts and more regions look to attract private investment. As the number of obsolete State-owned infrastructure assets which are unattractive to private investors increases, the government will seek ways to attract nancing by engaging private capital through sharing the risks and providing guarantees or other forms of support. We believe that there will be further appetite to acquire interests in eastern European rail logistics assets on the back of the GEFCO acquisition, driven by a greater focus on the integration of Russian and European markets. AFK Sistema recently announced its intention to spend up to USD6 billion creating a major Russian rail freight operator in the near future, and the Russian government is also rumored to be considering auctioning its 50.1% stake in Transcontainer. Moscow airports remain attractive assets for European investors, who are seeking to diversify away from mature airports into a more vibrant and promising Russian market. Reports suggest that Sheremetyevo and Vnukovo airports may be merged in 2013. However, we expect the nalization of a development strategy for all Moscow airports to delay entry by foreign investors. We expect continued focus on infrastructure related to specic events such as the 2014 Winter Olympics in Sochi 2014 and 2018 FIFA World Cup. Going forward, we expect greater interest in the Russian market from major international logistics players and conglomerates with signicant logistics divisions. The dynamics will, however, depend on the availability of models for private participation, availability of long-term funding and overall levels of economic activity.
Total deal value: Total deal volume: Market share by value:
USD3.3 million 65 4%
M&A in sectors not separately covered in this survey, have been included within other markets. A total of 65 transactions with a combined value of USD3.3 billion were announced across the 14 different industries which comprise other markets in 2012. However, the top ten deals were concentrated in six sectors aerospace, automotive, equipment and machinery, forestry, healthcare and pharmaceuticals which between them accounted for 85% of total M&A and 55% of deal volume within other markets. More than two thirds of deals within other markets were domestic transactions, although cross-border deals accounted for more than half of the total value of M&A. The majority of transactions in other markets were valued at less than USD100 million during 2012, with only 9 deals exceeding this amount.
Key drivers
The automotive sector accounted for the largest share of M&A in other markets, with three deals totaling USD1.2 billion. In December, Renault-Nissan and State owned Russian Technologies conrmed the creation of a new JV, Alliance Rostec Auto BV, to hold their interests in the car maker AvtoVAZ. The deal, which is expected to complete by June 2014, will see Renault-Nissan invest USD742 million and hold 67.1% of the JV, and Russian Technologies 32.9%. Troika Dialog will sell its shares in AvtoVAZ to the JV over the same period. This is an important step in the restructuring of AvtoVAZ, and will give Renault-Nissan majority ownership of a key player in what is expected to become the largest car market in Europe. Prior to this deal, Russian Technologies increased its stake in AvtoVAZ to 29% by acquiring 10.2% of its shares for USD420 million.
11
Number of deals by sector in 2012

10 5 3
6 4 6 3 14
Another example of State participation was the acquisition of a minority stake in Russia Forest Products (RFP) Group by the newly established Russia-China Investment Fund from the shareholders of Evraz and Renaissance Capital for USD200 million. RFP Group is the fth largest forestry company in Russia and second largest forestry exporter to China, and was the rst investment by the Fund. Six deals were announced in the Russian pharmaceuticals market, four of which were inbound transactions. The largest of these resulted in Valeant Pharmaceuticals investing USD370 million to acquire Natur Produkt from Renova Group and, certain production assets located in Russia and the CIS from Gerot Lannach, as part of its emerging markets expansion strategy. M&A activity in the equipment and machinery sector, which accounted for 21% of deals, was partially attributable to mandatory tender offers to squeeze out minority shareholders and, demand for machine tools and power generators. Hydraulic Machines & Systems Group was the most active investor, completing three deals including the USD168 million acquisition of Kazan Compressor
Aerospace Automotive Chemicals Engineering Equipment and machinery
Forestry Healthcare Pharmaceuticals Leisure and tourism Other
Ten largest transactions in other markets in 2012

Target 1 2 3 4 5 6 7 8 9 10 Avtovaz Avtovaz RFP Group Sector Automotive Automotive Forestry Acquirer Renault-Nissan BV and Rostekhnologii JV Rostekhnologii JV Russia-China Investment Fund Valeant Pharmaceuticals International, Inc. Valeant Pharmaceuticals International, Inc. HMS Hydraulic Machines PLC Fair Friend Enterprise Group Highstat Ltd Baring Vostok PE Fund IV Russian Helicopters, JSC Vendor Troyka Dialog Avtovaz Shareholders of Evraz Group S.A. and Renaissance Capital Eyetech and Probiotica Laboratories Ltda Renova Group SINKh Borodino Minority shareholders Ex-shareholders of UMG Limited Minority shareholders % share acquired 20.5% 10.2% Undisclosed minority Certain assets 100.0% 74.5% 100.0% 13.1% 27.0% 13.7% Value USDm 742 420 200 185 185 168 167 163 100 78 2,407 72.2%
Gerot Lannach-Ceratin Assets Pharmaceuticals Natur Produkt International, JSC Kazankompressormash JSC Sachman Rambaudi S.p.A.; Jobs SpA; Sigma; DMC OJSC Power Machines United Medical Group Ltd Kazan Helicopters, JSC Pharmaceuticals Equipment and machinery Equipment and machinery Equipment and machinery Healthcare Aerospace
Ten largest transactions total As a % of total other markets deal value
Deal value by sector in 2012

2% 5% 13%
Engineering Plant, which analysts at Troika Dialog referred to as a valuable but overstated acquisition. The Russian conglomerate Borodino sold its machine tools business to Taiwans Fair Friend Enterprise Group for USD167 million, while Mr. Alexey Mordashov acquired the remaining shares in a St. Petersburg based manufacturer and wholesaler of power generation equipment which he did not already own for USD163 million. The healthcare sector accounted for 9% of deal volume and 7% of transactions value in other markets, and included Baring Vostok Capital Partners USD100 million acquisition of a 27% stake in United Medical Group Limited, the parent company of the European Medical Centre Group of Companies (GEMC). This is one of the largest deals in the Russian healthcare sector, and will enable GEMC to nance its projects up to 2015. Aerospace was also an active sector during 2012, following the launch of a State program to increase Russias share of the global helicopter market to 30% by 2025. Russian Helicopters was responsible for all but one of the ve deals in the sector during the year consolidating its ownership of Kazan Helicopters, the Rostov-On-Don helicopter manufacturer RostVertol, and Ulan-Ude Aviation Plant in four separate mandatory tender offers totaling USD138 million. These transactions reect the companys strategy to consolidate ownership of the Russian helicopter industry.
7% 6%
36%
18%
2% 7%
Aerospace Automotive Chemicals Engineering Equipment and machinery
Forestry Healthcare Pharmaceuticals Leisure and tourism Other
Other markets
Outlook
The Russian M&A market is still relatively less developed outside of the eight key sectors separately analyzed in this survey, as reected by our analysis of other markets. However, it is likely that there will be further activity within the diversied industrials sector, as large nancial groups continue building strategically focused investment portfolios, and divest non-core assets as part of this strategy. State-owned enterprises such as Russian Technologies, RUSNANO and the Federal Agency for Management of State Property (FAUGI), will continue to play a key role by divesting assets which are not considered to be core to their long-term objectives and by building their presence in strategically important sectors and asset classes. We also expect to see further consolidation within the aerospace sector, driven in part by the governments objective to build dominant positions in specic segments of the market. The pharmaceutical and healthcare sectors are anticipated to remain active during 2013, driven by population demographics and aspirations to improve the overall quality of healthcare service.
Our report is based on a internal KPMG database which was compiled using information available from MergerMarket and Thompson Reuters. Our database includes deals which were completed in the period from 1 January 2012 to 31 December 2012, or were announced during this period but were still pending at 31 December 2012. Financial details for a number of the completed and announced deals included in the MergerMarket and Thompson Reuters information were not disclosed. We have supplemented information from these sources with additional KPMG research to identify or estimate deal values using other sources, including for example press releases issued by the target, acquirer or vendor, Bloomberg, DealWatch Russia and M&A Journal. We have excluded deals where it has not been possible to determine deal values from other sources, as well as certain non-commercial transactions such as the transfer of assets from one stateowned enterprise to another. Figures disclosed within our report on the value and number of Russian M&A deals include domestic transactions where the target and acquirer are Russian, as well as cross-border deals where either the target (inbound) or acquirer (outbound) is Russian. Data on the Russian M&A market in 2012 was compared to the data for 2011 based on the KPMG database and sources mentioned above. Historical data presented in this report may differ from earlier versions of the survey where databases have been retrospectively updated. Deals are allocated to individual industry sectors based on the industry sector of the target, which may involve using our judgment and in such cases the allocation is therefore subjective. We have not been able to extensively verify all data and cannot be held responsible for the absolute accuracy and completeness thereof. Analysis of different data sources and data sets may yield deviating results to those presented in this report.
Our clients Our clien nts in n Russ sia and the CIS S inc clu ude LUK KOIL L, Ros snef ft, Gaz zpro om, TNKTN -BP, RUS SAL, Nor rils sk Nic ckel, UMM MC, Enel, Za apor rozh hsta al, Ene ergoa atom m, SUEK EK, Aero oot t, Svy yazin nves st, Ro ostel lec com m, MTS, Uk krt tele ecom m, Gazp pro omb bank k, MDM Bank k, HS SBC C, Ura als sib Bank k, Uk krso otsba ank, Rosg goss str rak kh (RG GS), the e Sam mruk k-K Kaz zyna Na ationa al Wel lfar re Fund, , Razg gulay y Gro oup, Ne estl , Aucha an, Peps siC Co, Met tro o AG, Un nileve er, Coc ca Co ola a, Mic cro osof ft and d oth her maj jor r glob bal com mpan nies and CIS S eco onom mic le eaders.
Lvov Kiev Donetsk
St.Petersburg Moscow Nizhny Novgorod Kazan Rostov-on-Don Perm Ekaterinburg Novosibirsk Atyrau Astana Almaty Bishkek Krasnoyarsk
Tbilisi Yerevan Baku
Contact us Sean Tiernan Head of Transactions and Restructuring Partner T: + 7 (495) 937 4477 E: seantiernan@kpmg.ru Lydia Petrashova Head of Sales for Advisory Partner T: + 7 (495) 937 4477 E: lydiapetrashova@kpmg.ru Peter Latos Transactions and Restructuring Director T: + 7 (495) 937 4477 E: peterlatos@kpmg.ru
www.kpmg.ru
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a part of the KPMG Europe LLP group, and a member rm of the KPMG network of independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Russia. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (KPMG International), a Swiss entity.

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M&A in Russia 2012

KPMG in Russia and the CIS

2 | M&A in Russia 2012 2011

2013 ZAO KPMG. All rights reserved.

M&A in Russia 2012 | 3

Sean Tiernan Head of Transactions and Restructuring

ACQUISITION OF TNK-BP BY ROSNEFT

Total deal value, USDbln

2009 2010 2011

2013 ZAO KPMG. All rights reserved.

4 | M&A in Russia 2012

Total deal value, USDbln

Number of deals (volume)

Deal value, USDbln

Global and Russian M&A deal volume index, 20052011

160 140 120 100 80 60 40 20 0 2005 2006 2007 Global

2013 ZAO KPMG. All rights reserved.

M&A in Russia 2012 | 5

Number of deals by type, 20112012 2012

Deal value by type, 20112012 2012

Russian M&A deal value and volume, 20052012

Domestic Inbound Outbound

6 | M&A in Russia 2012

M&A in Russia in 2012

Cummulative growth, 2012 versus 2011

Jul Aug Sep Oct Nov Dec

Number of deals by sector in 20112012

Deal value by sector in 20112012

8% 9% 5% 17% 17% 17% 8%

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M&A in Russia 2012 | 7

Russian M&A largest transactions in 2012

Investor group (SPO)

Weather Investments II S.a r.l.

Gazprombank SABMiller Plc (beer business in Ukraine and Russia) MegaFon

SABMiller Plc TeliaSonera AB/ MegaFon Investments

Vladimir Lisin (Private Investor)

Russian Railways OJSC

OOO LUKOIL-West Siberia Garsdale Services Investment Limited

State auction Sergey Adoniev (75%) and Russian Technologies (25%)

Communication and media Oil and gas

1,500 30,716 37.0%

Eleven largest transactions(1) As a % of total Russian deal value(1)

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8 | M&A in Russia 2012

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M&A in Russia 2012 | 9

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10 | M&A in Russia 2012

30 25 20 15 10 5 0 10.4 2009 12.8 2010 9.0 2011 16.1 2012 26 20.7 52 44 51

Number of deals Deal value, USDbln VimpelCom/Weather Investments

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M&A in Russia 2012 | 11

Ten largest transactions in communications and media in 2012

Technology Media Technology Telecoms Technology

100.0% 75.0% 20.0% 6.0% 50.0%

500 338 300 218 200 14,611 91.0%

Number of deals by type, 20112012 2012

Domestic Inbound Outbound

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12 | M&A in Russia 2012

Communications and media

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M&A in Russia 2012 | 13

Russia M&A

Russia M&A