Emerging Realities in the Global M&A Market

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Last year, some of the most substantial acquisitions in the world were made by Russian companies. These acquisitions were part of a new trend that has seen Russian investment abroad catching up with foreign investments in Russia.

In one sense, this shift in Russia's role in the global economy has happened too quickly and too soon. Many observers -- their views unhelpfully clouded by high politics -- appear unready to accept a new economic bottom line.

Regrettably, movement in today's global M&A market is hampered by rising protectionism. While much has been made of Russia's "strategic sectors" legislation restricting foreign investment, other countries have enacted similar laws. In America, for example, regulations established by the Committee on Foreign Investment in the United States give Washington veto power over foreign investment in industries deemed "critical" to national interests. The elasticity of a term like "critical" hardly needs to be pointed out.

Russian companies wanting to invest abroad often have to face more than legal hurdles. In many cases, they must also contend with xenophobia. Here, some Western media have played a role, repeatedly inflating the negatives while underplaying the benefits of Russian investment. What's more, highly critical reporting of Russia's actions on the world stage (which came to a head in last month's accounts of the conflict in Georgia) has had the effect of reviving Cold War fears and making some people worry that "the Russians are coming."

Despite state-imposed legal hurdles, negative media, and community prejudices, many Russian companies have successfully invested abroad. A good example is GAZ Group's purchase of the British van maker LDV. When rumors first broke about the potential Russian investment, there was rampant concern in the British Midlands about what the Russians would do to an already distressed company. Now, two years on, LDV is going strong and GAZ has been credited by the local media with pulling off "something of a miracle."

The GAZ-LDV example is only one of a number of success stories involving Russian companies investing abroad. Largely out of the gaze of the Western media, Russian companies are leading the charge into the emerging economies of tomorrow. In Sub-Saharan Africa alone, five leading Russia-headquartered companies -- Norilsk Nickel, Rusal, Renova, Alrosa and Renaissance Capital -- have invested more than $5 billion over the past three years. Worldwide, Russian companies have just this year been involved in nearly $15 billion worth of cross-border M&A transactions.

So whether it's in the United Kingdom or Angola, Brazil or Vietnam, Russia's global corporations are competing fiercely for assets. Far from playing a peripheral role in the global economy, Russian corporate leaders have the potential to drive it forward for decades to come. For this reason, it would be unfortunate if poor relations between Russia and the West were to further restrict the international expansion of Russian business.

Incorrect or outdated perceptions of Russia will not disappear any time soon, and Russian companies will likely continue to encounter substantial resistance when doing business abroad. Extra efforts will be required to overcome these challenges. But in time, old perceptions will catch up with the new reality.