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. Last Updated: 07/27/2016

PwC Predicts Strong M&A Activity in '08

PricewaterhouseCoopers said Tuesday that Russia could expect robust mergers and acquisitions activity over the next year, as the recent global liquidity squeeze and associated higher costs of borrowing drive down the valuations of potential targets.

"The rapid growth [the banks] had will have to slow down because the wholesale funding is not there for them. This will challenge, in the short term, their margins and profitability," Gordon Latimer, financial services leader at the accounting firm's Moscow office, told reporters. "It might give the buyer more negotiating power when it comes to pricing."

Many Russian banks now see a share sale to a foreign partner as a way to attract additional capital to fund their growth, according to the findings of a survey by PwC and Mergermarket released at a news conference Tuesday.

"In the longer term, premiums will still be paid," Latimer said. "People are paying for that future expansion and market share."

Three out of four firms surveyed said they expected mergers and acquisitions activity in Russia to increase over the next year, while nearly half expect the majority of deals to occur in the $100 million to $499 million range, a bracket that Michael Knoll, head of PwC's mergers and acquisitions unit, called "surprising."

"We would rather see this deal range in a lower bracket," Knoll said. "This could be supported by the fact that if there is a major impact from the crisis, we would see small and medium-sized business players more actively looking for a sale."

While Russia has so far escaped largely unscathed from the global turmoil on financial markets, analysts have predicted a slowdown in banking-sector growth as lenders find it harder to tap overseas funding to finance expansion. Alfa Bank recently downgraded its growth predictions for the sector from 25 percent to 20 percent.

But PwC director Vladimir Vinogradov said there was no noticeable letup in interest in Russia, and he noted that several of his clients were in the process of identifying acquisition targets.

Cyprus' Marfin Popular Bank said Tuesday that it was seeking an acquisition target in Russia, Reuters reported. The lender said no final decisions had yet been made.

Earlier this week, Samuel DiPiazza, global head of PwC, said media coverage of the global turmoil had exacerbated the crisis because banks were afraid to publicize their exposure to subprime paper, Vedomosti reported.

"The media handled this question very badly because they didn't fully understand what was happening and didn't spend time checking their facts," DiPiazza said. "Investors would say to me: 'If I announce that we have $10 billion invested in subprime, the papers will write that we have lost that $10 billion and that we are bankrupt.'"