Business strategy

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Situation

During the global financial crisis, many companies find themselves in need of promptly revising their short- and long-term development plans to reduce the negative impact of the crisis or even keep their business afloat. On the other hand, some businesses may wish to use the situation to consolidate their market position. From a short-term perspective, the most urgent priority facing companies is increasing their liquidity; this is usually achieved by cutting costs and raising capital. Revising long-term plans requires a review of changes in the business environment and a company’s capabilities, identifying scenarios and selecting areas for development. This could either lead to minor modifications in a company’s strategy or to substantial changes.

Many companies, which used borrowing to fund their development, see a way out in selling part of their business (for instance non-core or non-performing assets) or merging with another company. For companies trying to find capital to continue their business activity, equity is one of the main sources of potential funding. Currently attractive valuations inspire foreign investors. These investors now find themselves in a favourable position, because they are one of the few remaining sources of financing for Russian companies. At the same time, certain Russian companies and funds have maintained a specific liquidity reserve that could be used for investment purposes. Because of this, the current market environment is favourable to buyers. Investors and businesses with available funds are seeing new opportunities as current prices are much more realistic than before. The cost of assets has fallen significantly in many industries and this allows companies to purchase assets which were previously not affordable.

According to current estimates, in the near future we can expect the continuation of mergers and acquisitions (M&A), particularly for medium-sized Russian businesses. Buyers are either strategic or private equity investors. In the context of such a change in the balance of the investment market, investors and companies looking for investment should base their decisions on a comprehensive strategic analysis. Only then will their acquisitions and disposals bring substantial benefits in the long-term.

Measures of success

During the global financial crisis, many businesses, particularly medium-sized companies and banks, are in need of the following:

• A revision of the current business strategy, which will not only allow businesses to maintain their long-term potential, but also facilitate future growth
• Improving the efficiency and transparency of the business process to make the company more attractive to potential buyers or partners
• An active search for additional financing, where M&A is often the only realistic alternative at present

Addressing these needs should be based on strategic analysis and involve experienced specialists. And as far as foreign investors are concerned, they will need to take local circumstances into account.

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