Mergers multiplied by division – Newspaper Kommersant No. 29 (7474) of 02/16/2023

Last year, the volume of transactions in the Russian M&A market was only 7.7% short of 2021, amounting to $42.9 billion. At the same time, most transactions, especially large ones, turned out to be forced: foreign companies actively got rid of Russian assets, while from foreign ones. In 2023, experts expect an increase in the number of transactions, but a reduction in the market in money terms. Foreigners will continue to leave, but the value of assets will decline.

The fourth quarter of 2022 in the Russian M&A market turned out to be the best seasonally – the volume of transactions reached $16.37 billion, follows from the report AK&M agency (Kommersant got acquainted with it). However, this result is noticeably lower than in 2021 ($18.15 billion) and 2020 ($19.96 billion). In general, transactions worth $42.9 billion were concluded last year, which is 7.7% lower than the result of 2022. Compared to the “pandemic” year 2020, the growth was 8%.

“There were more than enough reasons for the market to decline: the economic downturn, sanctions, a sharp decline in investment, higher interest rates on loans, and so on. The drawdown could have been much deeper, but the typical investment activity of the past years was partially replaced by transactions on the withdrawal of foreign investors from Russia,” explains Denis Surovtsev, director of the investment and capital markets department at Kept.

Against the backdrop of a 13% reduction in the number of transactions, to 517, their average size increased to $83 million (almost 7%). The average cost of a transaction, excluding the largest (more than $1 billion), increased even more — 1.6 times, to $67.3 million, according to the AK&M report. In addition, with an increase in the average value of companies sold over the past year, only four transactions worth more than $1 billion were recorded. At the same time, as Lyudmila Eremina, deputy general director of AK&M, notes, “all billion-dollar transactions were forced.”

• In particular, the largest transaction in 2022 was sale Roman Abramovich of the Chelsea football club to a consortium of British investors ($3.15 billion).
• The second place was taken by the exit of the South African Naspers from the Russian Federation – sale Avito to Ivan Tavrin’s holding for $2.45 billion.

The construction industry is leading the way: in 2022, there were 200 deals for $8.6 billion. In addition, the winners included machine building (48 deals for $6.13 billion) and the financial sector (23 deals for $4.04 billion), which showed an increase of 1 ,9 and 4 times, respectively. These are the sectors in which the exits of foreigners were most active, experts point out. In particular, some foreign automakers sold their assets in the Russian Federation (see “Kommersant” dated August 26 And October 12, 2022), foreign banks also left the country (see “Kommersant” dated April 12, 2022).

“In the current realities for foreign investors, the possibility of selling Russian business directly depends on the availability of an asset base in the form of real estate or facilities under construction (construction industry), a loan or insurance portfolio (financial sector) or factories (engineering and other processing industries). In those industries where the asset base is less pronounced (technology, services, trade), foreign investors exited either at extremely low valuations, or by closing a business,” notes Denis Surovtsev.

In 2023, the number of transactions in the market will grow, experts believe. A significant part of the transactions announced last year for the exit of foreigners has not yet been closed, processes are ongoing, the speed of which is influenced by many factors, including difficulties with the payment infrastructure, says Anna Aralova, director of Aspring Capital investment bank. The process of exit of foreign investors from the Russian market “will continue for at least another year,” says Anton Shulga, partner of the financial consulting department at DRT. At the same time, a decrease in the cost of companies offered for sale will affect the growth of interest among buyers, says Dmitry Orekhov, managing director of the NKR rating agency.

Perhaps this year the market will see interest from investors from friendly countries (China, UAE).

In dollar terms, the market volume is likely to decrease. “Due to more active state regulation, discounts on exit transactions have increased significantly, and the ruble exchange rate is now significantly lower than in 2022,” explains Mr. Surovtsev. The timing of M&A transactions will also slow down. This is mainly due to the approval procedure by the government commission, notes Elena Ershova, director of the practice of supporting transactions for the purchase and sale of businesses at Technology of Trust, at the same time, the time for considering applications is lengthening due to their large number.

Polina Trifonova