The inevitable consequence of the war and the military transformation of the political regime and economic conditions in Russia has been the powerful processes of property redistribution, which continue to gain momentum. These processes are determined by a number of domestic, geopolitical and economic factors and, as a result, are developing in several directions.
In 2022, the main driver of the Russian corporate mergers and acquisitions (M&A) market was the exit of foreign companies from the country. Sales of their assets accounted for 38% of the total value of all Russian M&A deals in monetary terms, according to a report by AK&M for 2022. In 2023, their share fell to 22% of the total amount. This was fuelled both by government pressure and obstacles (→ Re:Russia: Stay to Leave) as well as the natural oversupply in the market. However, in terms of the number of deals, the reduction was not as significant: 97 instead of 109. Nevertheless, assets continued to depreciate, as noted in the agency's report for 2023.
However, nearly a quarter (23.8%) of all purchases by total value in 2023 were made by state-owned companies. The picture is somewhat distorted by VTB Bank's $4.8 billion purchase of FC Otkritie from the Bank of Russia, but the general trend of state companies' expansion was determined by their buyout of assets from departing foreigners and legislative innovations that 'encourage state companies to buy Russian companies to consolidate assets in sectors necessary for self-sufficiency in resources (IT, construction and development, machine building, etc.),' as noted by the AK&M analysts. This is a politically rather than economically motivated consolidation, which, according to market experience, often results in increased costs.
However, after the Western business exodus from Russia stalled, a significant portion of deals now involve transactions between Russian businessmen, as indicated by another M&A market review prepared by Aspring Capital. In many cases, deals are motivated by the fact that sellers (business creators) seek to leave the toxic market, the authors of the study note. Meanwhile, demand is driven by entrepreneurs who no longer have the opportunity to invest outside of Russia, primarily as a result of sanctions. For example, according to media reports, Sergei Kislov, founder of Yug Rusi, the largest sunflower oil producer, left Russia after selling his business. The new owner of Yug Rusi is linked to former Agriculture Minister Alexander Tkachev. The deal is estimated at 40 billion rubles, excluding the value of debt. And the founder of the largest service for business automation in the service industry, YClients, Yuriy Petrov, sold it to VK and focused on developing its international counterpart, Altegio, moving to Brazil.
However, not everyone has succeeded in selling their Russian business. As we have previously written, one of the targets of the new 'Putin's redistribution' are large entrepreneurs who have built their businesses in past decades, but who now effectively live outside Russia (→ Re: Russia: Putin's Redistribution). Their assets are being seized in favour of the state. The most high-profile case of this kind is unfolding right now: in late March, the Prosecutor General's Office began nationalising Makfa, the largest producer of pasta, flour and cereals, with assets estimated at $500 million. The prosecutor's office accused the company's owners Mikhail Yurevich and Vadim Belousov of continuing to run the business while holding elected office (Yurevich left his last such position back in 2014). In fact, Belousov and Yurevich, who were charged with bribery, have long left the country. In this sense, the 'Makfa' case continues the logic of redistribution, within which the largest Russian car dealer 'Rolf,' owned by Sergey Petrov, was previously nationalised. A slightly different but conceptually similar example of nationalist expropriation is the temporary transfer of management to the Federal Property Management Agency of AgroTerra, an agroholding that is among the top 15 largest landowners in Russia, according to Forbes. The actual owner of AgroTerra is George Rohr, an American entrepreneur with Ukrainian roots.
In turn, rampant nationalisation opens up fiscal prospects for property redistribution. In 2023, the budget received 29 billion rubles from the sale of assets (in addition to the money the budget received as compensation from foreign companies leaving the market) instead of the planned 1.8 billion rubles. In 2024, the government expected to receive 1 billion rubles from privatisation, but Finance Minister Anatoly Siluanov recently announced that the plan has been increased hundredfold. The increase in revenues should be ensured by the sale of companies nationalised in 2023. In particular, large assets in the automotive industry (Toyota and Nissan plants in St Petersburg, Bosch in Samara) and the energy sector (controlling stakes in Unipro and Fortum) have been transferred to state ownership.
Another trend on the M&A market — consolidation — also has geopolitical overtones. This trend is most pronounced in the retail, agriculture, and heavy industry sectors, as noted by Aspring Capital analysts. In retail, alongside the ongoing departure of foreign companies, a significant factor is the geographical expansion of the largest supermarket chains. X5 Group, Magnit and Lenta are buying up regional players. In agriculture, record volumes of mergers and acquisitions are driven by rising production costs. However, the main driver of consolidation is the lack of capital outflow — the inability of many Russian entrepreneurs and corporations to invest abroad. As a result, Russia is turning into a 'closed system of big money,' as recently noted by the chairman of the NAUFOR Board, Oleg Vuygin. This effect also leads to growth in the stock market and company valuations. Thus, if the value of assets being sold decreases due to government pressure and non-competitive conditions, the price of assets for new owners starts to rise, but this growth is speculative.
Further, another trend is the emergence of new 'big names' on the market.Large assets are being acquired by second-tier businessmen. For example, in the industrial sector, the most active investor, according to Aspring Capital analysts, is the holding company S8 Capital, the beneficiary of the state lottery business ('Gosloto') Armen Sarkisyan. S8 Capital bought large tire manufacturing plants from foreign companies Continental, Bridgestone, and Russian Cordiant, as well as the Russian assets of US lift manufacturer Otis and Finnish Kone. Two other 'new names' that made themselves known last year were Ivan Tavrin's Kismet Capital Group and Arnest, owned by businessman Alexander Sagal, who was a little-known Stavropol businessman before the war. Tavrin's company not only bought Avito and increased its stake in hh.ru, which was expected given that he earned his fortune by developing media assets in partnership with Alisher Usmanov, but also acquired assets of the household chemicals manufacturer Henkel, the fuel payment service developer Fleetcor, and the company Melon Fashion Group, which owns the clothing brands Sela, Befree, and Zarina. The largest aerosol manufacturer Arnest bought the assets of Oriflame, with which it has previously cooperated, but also somewhat unexpectedly acquired seven Heineken breweries and three aluminium can production facilities previously owned by the American Ball Corporation. As a result, Bloomberg named Sagal the luckiest Russian businessman among those who rushed to buy up the assets of departing foreign companies. Just three months after Ball bought the assets, they brought him 8.69 billion rubles in dividends — approximately 20% of the transaction amount, which was only 60% of the total annual revenue of the plants.
It is possible that some of these Ball assets will change ownership in the future, but the trend of 'new names' is most likely strategic. The new generation of businessmen, the 'children of redistribution', are expected to become the 'new elite' that will displace and replace the generation of successful businessmen of the 1990-2000s. Unlike them, the new 'sanctions' generation will initially view themselves not as part of global markets, but as 'kings of the petrol station', forever limited to the domestic market, adapted to the conditions of long-term isolation and predominantly oriented towards non-market competitive advantages, which will further contribute to the degradation of corporate culture in Russia.