fivehundred magazine > Practice area spotlight: M&A > Russia’s tale of cautious optimism

Russia’s tale of cautious optimism

King & Spalding’s Sergey Komolov, managing partner, and Ilya Zotkin, of counsel, discuss the latest challenges facing M&A lawyers, including client expectations and the redistribution of market share

Please give us an overview of the current legal market in Russia and how any recent developments have impacted your practice?

The legal market in Russia and, more specifically, the M&A practice area generally follow and are influenced by the relevant economic and political drivers. Political turmoil (including continued and worsening budgetary problems), geopolitical tensions, Ruble exchange rate instability and financial sector problems, and sanctions produce a chilling effect on the Russian investment market.

The M&A market has received some stimulus, however, from the recent improvement in industrial production between 2017 and 2018, comparative cheapness of assets, and deferred demand for transactions. Still, the biggest and most important transactions seem to be focused on non-Russian assets and businesses.

Increasingly fierce competition in the legal market induces main players to
act rather aggressively in terms of pricing, trading immediate gain for long term efforts to build or strengthen relations with clients and take a bigger market share.


What significant trends exist in the M&A market presently? Are you seeing these just domestically or internationally as well?

The most significant trend is the increasing pricing and quality competition in first-tier law firms operating in Russia, which now include at least several domestic firms that are quite competent in international M&A transactions. At the same time, transactions are becoming more complex and therefore require increased competence and skills from engaged legal teams. Also, in-house counsel in Russia (a lot of them with past ILF experience) have become more sophisticated and are handling many aspects of M&A and joint venture projects themselves. It is part of an international trend.


What are the three biggest challenges to practising M&A in Russia at the moment?

As mentioned, the high level of competition and clients’ rather low pricing expectations seem to be the biggest challenges in the market. Against this backdrop, a number of domestic firms seek to redistribute market share through lobbying for introduction of restrictions on ILFs’ activities in Russia.

From a purely legal standpoint, the main risks in the area of Russian M&A remain the same: unclear tendencies in the prevailing court practice and, more generally, a big question mark over the readiness of Russian courts to apply increasingly more complex and unfamiliar corporate and contract legislation.


How does your M&A practice fit into the firm as a whole? Is it easy to collaborate with other teams?

The new integrated corporate, finance and investments practice is one of the dominant practices at King & Spalding. Considerable efforts are invested in building inter-practice and inter-office cooperation, and it is always easy to assemble multi-discipline teams for important projects, so that clients can
receive high-quality, yet price-efficient services. This is very much a ‘one-firm’ concept in action.


What advice would you give to the next generation of M&A lawyers?

First and foremost, think business and be a business partner to your clients. Second, do not put yourself in a silo, always try to master new areas of expertise. And finally, new technology can work wonders, but there is no replacement for human strategic thinking, so exercise your mind and think big.


What are your predictions for M&A in Russia over the next five years?

There is a lot of liquidity held by major Russian banks and corporates, and any increase in economic and legal predictability is going to be an incentive to invest some of that liquidity. The key, of course, is availability of attractive investment projects with a predictable rate of return, but a supportive legal environment plays an important role as well. Very cautious optimism is in order. It should be mentioned that 2017/18 witnessed increased governmental supervision over acquisitions by foreign parties of stakes in Russian companies in all sectors.