Companies are merging in unison

The results of the last quarter, as well as all of 2023, in the mergers and acquisitions market showed multi-year records. The consolidation of different segments of the Russian market took place against the backdrop of increased activity by state-owned companies and a decrease in the number of transactions with investors from unfriendly countries. At the same time, in 2024, experts expect further growth of the market due to the expansion of the number of investors from friendly countries, the development of a wide range of industries and the redomiciliation of companies to Russian jurisdiction.

According to the results of the fourth quarter of 2023, 135 mergers and acquisitions worth $17.2 billion took place on the Russian market, according to data from the AK&M agency, which Kommersant reviewed. This is a record volume over the past two years.

In total, 536 transactions worth $50.59 billion were carried out during the year, which was the highest figure since 2019. Almost a quarter of the transactions involved state-owned companies – eight transactions, each worth more than $1 billion. The largest of them was VTB’s acquisition of FC Otkritie Bank for $4.83 billion. The top three also included transactions for the sale of the Neftetransservice group of companies (estimated at $2.79 billion including debt), and Vladimir Lisin’s First Freight Company to the owners of SG-Trans (estimated at $2.48 billion).

At the same time, the number and volume of transactions in which a foreign entity sold an asset located on Russian territory to a Russian entity decreased. In 2023, 97 transactions worth $11.14 billion were concluded, while a year earlier there were 109 transactions worth $16.31 billion. The most active companies leaving the Russian market were from the United States (14 assets belonging to American investors were sold during the year), Germany (13 transactions), Sweden (12). “Currently, most countries prefer to invest in national economies. Under these conditions, the share of cross-border transactions is unlikely to tend to increase. At the same time, the development of relations with friendly countries will certainly continue to stimulate cross-border M&A processes, but not on such a scale as before,” notes AK&M Deputy General Director Lyudmila Eremina.

One of the most noticeable replacement processes in 2023 was the arrival of Chinese automakers at sites that had been abandoned by Western companies, notes Maxim Tolkachev, a partner in the DRT financial consulting department: “We can expect that in the future, the relationships that have arisen between Chinese automakers and Russian sites will transfer through mergers and acquisitions from the plane of contract assembly to the plane of joint ownership and management of production sites.” In addition, Chinese companies will have to resolve the issue of localization, “which will be an additional incentive for mergers and acquisitions in the auto components sector,” he believes.

AK&M experts do not expect the M&A market to slow down in 2024. “Firstly, the process of Western investors exiting Russian assets has not yet been completed. Secondly, the country is reconsidering its attitude towards private owners of enterprises that are of strategic importance for the country. Thirdly, the development of such industries as mechanical engineering, transport, food, agriculture, construction and a number of others will also stimulate the M&A market,” explains Lyudmila Eremina.

The market is expecting an increase in the number of transactions in healthcare and pharmaceuticals, where in 2023 M&A activity was at a minimum level, says Vice President of Aspring Capital Anton Fedotov: “And if in the pharmaceutical market the resumption of consolidation will stimulate tougher competition, then in the healthcare sector against the backdrop “With the redomiciliation of the largest chains, a serious reorganization of the market is expected with a change of owners in a number of key assets.”

Companies that have demonstrated a stable financial condition during the crisis years may show interest in inorganic growth through asset acquisitions, believes Elina Kulieva, senior director for corporate ratings at the Expert RA agency. “In the next two to three years, we can expect that the IT sector will become the main driver of M&A transactions against the backdrop of a growing role in all areas of business,” says Igor Golubnichy, an expert at the ACRA corporate ratings group. Managing Director of the NKR rating agency Dmitry Orekhov adds that the state’s high share in mergers and acquisitions will remain.

Polina Trifonova