According to the results of the second quarter of 2023, 172 mergers and acquisitions worth $12.5 billion took place in the Russian market

Activity on the Russian mergers and acquisitions (M&A) market remains at a high level. The volume of transactions in the second quarter amounted to $12.5 billion, showing the third result in three years. In the future, experts expect a continued growth in the number of transactions, but a decrease in their volume. Basically, we will talk about the exit of Russian owners from foreign assets, while the process of selling business in the Russian Federation by foreign owners will be complicated by strict legislative requirements.

According to AK&M, according to the results of the second quarter, 172 transactions for $12.5 billion took place in the Russian M&A market. In monetary terms, the result is the same as in the first quarter, but in quantitative terms, the market grew 1.5 times, with more than a third of transactions taking place in June . In the reporting period, two major transactions worth more than $1 billion took place – the sale by LUKOIL of the ISAB refinery in Sicily for $1.61 billion and the purchase by Rosatom of three blocks of the Budenovskoye uranium deposit in Kazakhstan for $1.6 billion. In the previous quarter, there was one major transaction – purchase by VTB bank of FC Otkritie bank for $4.83 billion.

In the second quarter, the leadership in terms of the number of transactions was maintained by the construction and development sector (72 transactions). In monetary terms, the leaders were the mining segment ($2.62 billion) and the fuel and energy sector ($2.14 billion). “In the future, construction will also be in trend, the segment will retain a large market share. However, the volume of transactions will be gradually reduced,” says Lyudmila Eremina, deputy general director of AK&M. In her opinion, the reason is “the completion of the consolidation of enterprises in the hands of the public sector and big business”, an oversupply, curtailment of investment programs and, as a result, a drop in demand for previously popular assets.

Meanwhile, the sphere of trade and services (hotel business, resorts, advertising) has already begun to compete with construction in terms of investing money. According to AK&M, in the reporting quarter, 12 transactions were concluded in this segment with an average value of $20 million. Capital Alexey Makhov.

In the future, M&A market volumes will be supported primarily by the exit of Russian investors from foreign assets. “If earlier banks were withdrawing from their assets, now it is the turn of metallurgists, who previously sold mainly sales divisions abroad, but recently began to put up production facilities for sale,” notes Ms. Eremina.

The departure of foreign investors from the Russian market will restrain the tightening of regulation. The government commission has established special conditions for foreigners wishing to sell Russian units: a discount of at least 50% of the cost, an installment payment for the buyer for one or two years and payment to the budget of at least 10% of the transaction amount. Some foreign investors will now simply not be able to sell their business in the Russian Federation. A number of strategic assets, primarily in the fuel and energy complex, are simply taken by the state under “temporary control”.

Foreign investors themselves do not seek to leave medium and small Russian assets, given the “relative normalization of the economic situation” and the possibility of making a profit in conditions of reduced competition, experts say (see also p. 7). “The shareholding structures of small foreign companies often do not experience political pressure in the countries where they are headquartered,” adds Artem Samsonov, managing partner of DRT’s financial advisory department.

In Russian companies themselves, a “change of generations” may become more active – the sale of property by beneficiaries who, for various reasons, could not create a family business and organize the transfer of assets to children, experts say. In addition, after some time, the Russian market expects deals on “shuffling previously acquired assets.” According to Mr. Samsonov, this can be expressed “in the resale of assets to strategic players, the exit of non-core investors from consortiums and the emergence of new large beneficiaries in companies where assets were previously bought out by management.”

Polina Trifonova