A Review on the Russian Mergers and Acquisitions Market in 2023

The trend towards consolidation has become a hallmark of many industries, with both strategic and financial investors actively participating. Strategic investors in the TMT sector are ramping up their investment activities, while those in the retail industry continue to expand geographically. Amid a gradual rise in production costs, we expect consolidation in the agricultural sector and certain branches of heavy industry to persist. Additionally, we foresee an uptick in transactions within the private healthcare and pharmaceutical sectors, which experienced minimal M&A activity in 2023. Increased competition will likely drive consolidation in the pharmaceutical market while the healthcare sector faces a significant wave of redomiciliation. This could result in major redistribution and consolidation, leading to multiple changes in the ownership structure of key assets.

Market activity among strategic investors has increased significantly. These investors are primarily interested in targets with potential future synergies and in growing and break-even assets. In specific industries, such as oil and gas, where opportunities abroad are limited, investors have begun to pursue transactions within Russia and the CIS countries actively.

Regardless of the sector, buyers prioritize growing targets expected to generate at least break-even and, ideally, rising profits. Financial investors, meanwhile, focus on clearly justified monetization of a target upon their future exit.

Non-core investors remain more interested in assets due to limited capital within the country and previously heightened interest in the assets of departing foreigners.

Based on our understanding of the industry, a significant portion of market transactions is motivated by the desire of Russian sellers to exit Russian businesses to either focus on foreign markets or, in general, to spend most of their time abroad and not participate actively in Russian business.

The number of transactions conducted by foreign investors with the desire to exit the Russian market decreases, which is also due to increased counter-sanction regulation; hence, domestic players become the leading market makers. On the buy side, in addition to regular acquirers from the Forbes list, Kismet Capital Group, S8 Capital, Arnest, FSK, and others are the main buyers on the market for the second year in a row.

Due to the regulator's pressure, foreign investors' sales of Russian assets decreased. However, the average level of asset valuation (unrelated to the number of foreigners leaving) has stabilised gradually. In some cases, values returned to the levels ​​of two or three years ago digits. During this year, the transaction average values gradually increased and reached 5x EBITDA multiples by the end of the year, which is considered high in the current situation. Moreover, the valuation of unique assets in domestic deals was noticeably higher.

The state is becoming a significant player in the M&A market – in 2023, some Russian assets in the automotive industry came into the state ownership, including Toyota and Nissan plants in St. Petersburg and the Bosch plant in Samara. Foreigners' shares in the Russian Danone and Baltika were transferred for temporary management of the Federal Property Management Agency. In April 2023, "Unipro" and "Fortume "also changed control.

Despite the ongoing high key rate set by the Central Bank of the Russian Federation, most market participants expect that it will be lowered sooner or later, which will undoubtedly increase activity in the M&A market.

The Russian IPO market recovered in 2023 — at the end of the year, 8 IPOs took place, with a total volume of > 40 billion rubles. The trends inherent in this activity are the entry of companies with small capitalization into the public market and high demand from retail investors. We expect the IPO market to continue its recovery in 2024, with the placement volumes likely increasing as institutional investors return to the market.