Entry market strategy: buying assets at 50% discount in Russia

Russia’s current economic cycle and the upcoming generation change open attractive acquisition opportunities to be noticed by smart multinational players.

The time is perfect for international companies to buy Russian assets. Starting a business in the 1990s, many founders of Russian businesses have come to an age of retirement from active duties. After 25 to 30 years of hard work, making money, creating values, upgrading manufacturing assets, growing market shares, those founding shareholders reached their limit of energy, knowledge and financial strength. 

The next stage for Russian assets would be either a scalable growth outside its home region with a potential for exporting goods globally, or in many cases, a sale of the whole business to a strategic market player. For retired founders, whose children often moved to Europe, the best exit strategy is to sell all of it as is. Indeed, when there are no financial resources to scale a business globally, and I speak of unreasonably expensive Russian bank loans, the only other choice would be to find a buyer. But there is a catch. A valuation of business is often based on a figure that every founding owner has in his or her mind. The problem is that the only true valuation is the value given by a buyer at the time of the acquisition. What price a buyer is ready to give is exactly the valuation of a business, not a vague number in seller’s mind. Many Russian sellers understand this idea well, hence, they are ready for a potential interest from global buyers. Many owners believe a global company thinks strategically and has the cash. 

The recent devaluation of Russian Ruble gives a global buyer at least 50% discount on asset values in Euros or US Dollars, while having the same value in Rubles. If a global company considers to stay in Russia long-term, buying good assets is a smart thinking. In case a global buyer considers the right entry market strategy before the next cycle of growth in Russia starts, what better alternative there is than to buy a local business preferably with manufacturing assets to enter the market “on shoulders” of an existing market player? Buy for 50 cents, while you can! Use cheap global finances at less than 1% bank loans, grow business in Russia. The time for action is now.

Author: Dr. Viacheslav Permiakov. Strategy Consultant. Linkedin.com/in/drpermiakov
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