MERGERS AND BANKRUPTCIES: WHAT SHOULD THE BUSINESS EXPECT AT THE END OF THE YEAR?

The A1 index, announced by the experts (who determine the level of conflict in the business environment), allows us to talk about what the business should expect by the end of 2020. According to the presented calculations, the “conciliatory effect”, caused by the consequences of the pandemic and having reduced the rate of conflict in the first and second quarter of this year, would quickly pass. Therefore, by the end of the year, the experts expect a new peak in corporate litigation, which will be reflected in massive bankruptcies, mergers and acquisitions.

We should recall that the new Russian indicator was proposed by the experts of Skolkovo School of Management and the employees of A1 investment Company. The latter is the subsidiary of Alfa Group holding, representing itself as a company dealing with corporate conflict regulation. The A1 Index is based on three main metrics:

-          changes in the number of appeals to the courts;

-          the number of organizations (medium and large businesses) with the capacity to create the conflicts;

-          media coverage (the number of reports of conflicts in the media).

The ability to calculate on the basis of open sources for the country as a whole and for individual regions is one of the characteristic features of the new indicator.

The experts estimate that the level of conflict in the country has been growing since mid-2018. By the end of 2019, it reached its peak in Russia, having increased by 47% over the year.

Moreover, the situation could be different in different regions of the country. For example, the capital and the Yaroslavl region were the most conflicting. At the same time, the Oryol region and the Republic of Mari El proved to be practically conflict-free territories.

The experts emphasize that the factor of seasonality plays an important role in changing the indicator of conflict in the business environment. At the end of the year, it usually grows as the market participants seek to obtain positive results for the year. Researchers note that although the number of the appeals to the courts might be growing, there are fewer companies that might of an economic interest for this. How the repatriation of the market of this year will look like is still a mystery.

The analysts explain the sharp drop in conflict indicators at the beginning of 2020 as a COVID-19 factor.

The closure of courts, the introduction of a moratorium on bankruptcy, a serious decline in business activity - all this could not contribute to an increase in the indexed indicators. However, by the end of the year, the number of business conflicts and the active participation of the media can reach another peak, overtaking the results for the end of 2019. The current situation in this regard can be called "the calm before the storm."