Although Russia is today the world's largest producer of
oil and gas, which is the primary source of its power, we at Blackhawk believe
that multiple challenges in the Russian context presently impede the
development of the private equity industry and will continue to do so until
effective changes take place. The most important of these challenges are
summarized below.
Narrow Deal
Pipeline
Private equity begins with a deal pipeline from which
investors at large can pick and choose situations in which they would like to
invest. In Russia, it is difficult to find deals that simultaneously include
solid management; transparent and credible financials; clean provenance; large
and growing markets; a solid business plan; binding contracts with vendors,
suppliers, and distributors; and clear potential exit strategies.
When these deals do occasionally appear, we find
ourselves in frustrating situations where our money is not wanted. The
companies in question may not be interested in growth beyond a certain size or
they end up being the subject of deeply discounted acquisitions conducted in
relative secrecy.
Many deals are also too small in size ($500,000-$1,000,000)
and, given the intensity and costs of hands-on, private equity investing, deals
this size simply do not make economic sense for us yet.
Continuous Reading: Challenges and Opportunities in Russia
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