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Russia is without doubt the most interesting emerging market for UK-based corporate lawyers, with India its only rival. The Chinese economy and legal framework have both developed rapidly, but most major Chinese deals are run out of Shanghai or Hong Kong. It is the Russian market that makes the news in London.
Why are Russian companies so active? What is the particular attraction of London? And how long will this boom continue?
The growth of the Russian economy has been assisted greatly by rising commodity prices, but we should not focus only on commodity businesses. The entire economy was under state control pre-1991, and in the privatisations that followed, businesses were sold across the entire spectrum of industries.
Nizhpharm, a Russian generics pharmaceutical company, is a good example. It was privatised in 1994 and bought by its managers. They were young and unblinkered by the Soviet way of doing business. Investment from the European Bank for Reconstruction and Development (EBRD) and Quadriga Capital followed as turnover increased seven-fold under private ownership. It was bought in 2004 by German pharmaceutical company STADA Arzneimittel for more than $100m (£50m).
Similarly, although Rosneft was the largest Russian IPO in London, Vneshtorgbank, supermarket Pyaterochka and telecoms company Sistema have all undertaken major GDR offerings in London.
In common with India, the legal work for UK-headquartered law firms initially involved inward investment, but in recent years Russia-based companies have expanded with acquisitions globally. Oleg Deripaska's holding company Basic Element has been particularly acquisitive, and Norilsk Nickel recently acquired Canada's LionOre for $6.4bn (£3.2bn). The London offices of international law firms have been heavily involved in those transactions.
So why is Russia of such interest to UK-based lawyers?
It is not just physical proximity to London that explains the City’s influence, although being three hours behind Moscow rather than New York's eight does help.
Although the Russian legal framework is much more advanced than even in the mid-1990s, there is still a level of the unknown about Russian law.
When STADA, a German company, acquired Nizhpharm, a Russian company, the purchase agreement was governed by English law. The German buyers did not understand Russian law, and the Russian sellers did not want to rely on German law, which was equally unfamiliar to them. English law was a compromise trusted by all parties.
Similarly, when RUSAL merged with SUAL and the alumina assets of Glencore earlier this year, English law was chosen to govern the transaction.
With regard to equity capital markets, the story is the same. As everybody knows, New York is not so attractive post-Sarbanes Oxley. The New York Stock Exchange and New York law have lost out to the London Stock Exchange and English law in recent years in respect of Russian businesses.
But will this continue? So long as the oil price remains high and commodity prices stay strong, the Russian economy looks set to continue to grow.
There is a young entrepreneurial spirit in Russia which will help the growth of the economy. The recent credit squeeze does not seem to have harmed Russian companies to date – Norilsk Nickel raised $6bn (£3bn) in debt financing at the beginning of September to help fund the LionOre acquisition and STADA has announced its second acquisition in Russia with the purchase of the Makiz Group for more than $150m (£75m).
For example, on a recent flight to Moscow I sat next to a Morgan Stanley investment banker, and on the return flight to London the seat in front of me was taken by a banker from Merrill Lynch and the seat in front of him, another from JPMorgan Cazenove. Each was in Moscow on a different deal which, anecdotally at least, indicates there is still a great deal of activity.
Andrew Edge is a partner at Ashurst