By Ben Aris in Berlin November 5, 2020
As Russia’s new economy comes of age it seems there is a new deal announced on a daily basis as the leading companies snap up start-ups or rivals in the rush to build an ecosystem that covers all of life’s needs and wants.
There are too many deals to go into one article but several really big ones have caught the headlines in the last few months.
Russian internet giant Yandex agreed to buy Russia’s only purely online bank Tinkoff Bank that is owned by TCB Group for a whopping $5.5bn in October, which would have added a powerful financial arm to the Cyrillic version of Google. However, the deal fell apart at the last moment after a reported argument of who was going to be in charge afterwards: Tinkoff Bank was talking about a “merger”, whereas Yandex talked about a “sale.”
Yandex is proving to be a prickly partner, as it had already entered into a joint venture with Sber (formally called Sberbank until it dropped the “bank” part of its name in October). By getting into bed with Russia’s biggest bank, the partners intended to build a multifunctional market place that would have covered half the population. But that deal also fell apart after a year, again over disagreements over who was going to be in charge.
Sberbank and Yandex are now rivals in an increasingly competitive market and are both rapidly fleshing out their portfolio of services through a never-ending string of acquisitions.
The deals are too numerous to list but in one of the most recent, Sber expanded its ecosystem by buying a 45% stake of online pharma distributor Eapteka, the second-biggest in the country, together with Russian pharmaceutical producer R-Pharm.
The retail bank has made similar investments into companies across the industrial spectrum to create a network of services made up at least 40 entities that it is slowly bringing together into a complete ecosystem.
Traditional retail has also attracted attention, as the leading retailers are proving to be great platforms for building e-commerce businesses, as they come with ready-made storage and logistical solutions. In a country as big as Russia, having an efficient logistics platform is a pre-requisite for building a working e-commerce business.
Sber’s main rival and the second-largest bank in the country, state-owned VTB Bank, bought a significant stake in Magnit, Russia’s biggest supermarket chain, last year that reaches into nearly every town in the country. In addition, VTB has taken over the job of setting up a Post Bank, using the premises of the Russian Post office that reaches into almost every village as well. VTB has already brought Magnit into the Post Office deal which will open post offices in Magnit’s stores.
Russian steel tycoon Alexei Mordashov is following the same logic when he bought into Lenta, one of Russia’s five big supermarket chains last year, beating out a bid by Magnit to take the company over.
To battle these giants, the big-three Russian e-commerce company Ozon Holdings announced in October it will IPO either at the end of this year or the start of next, depending on market conditions, Sova Capital reports, to raise money to continue its expansion.
The e-commerce space is getting increasingly competitive and China’s Russian subsidiary AliExpress Russia is aiming to reach $10bn gross merchandise volume by 2022-2023, and has not ruled out a future IPO. Ivi.ru, the Russian answer to Netflix, has also expressed an interested in a New York-based IPO later this year as it seeks more funds for its growth too.
The growing size of Russia’s new economy has already produced two dozen unicorns, companies that are valued at over $1bn.
Unsurprisingly, NASDAQ-listed Yandex and LSE-listed Mail.Ru Group led the ranking, with capitalisations of $20.6bn and $6.2bn respectively, and Yandex’s valuation has doubled in the last year alone.
Avito, the classifieds giant, was taken over by Naspers last year in a $3.85bn deal, while the explosive growth of the e-commerce company Wildberries, the rising star of Russian e-commerce, broke into the RUB41bn territory last year.
TalentTech is also a recent unicorn arrival and owned by the Severgroup subsidiary, which includes online education platform Netology.
This year Russia nanotube producer OCSiAl’s valuation topped $1bn, making it the state-owned technology organ Rosnano’s first unicorn.
Online recruitment platform HeadHunter has sealed its position as a $1bn tech company after a new multi-million dollar share deal confirmed the company’s soaring valuation in July this year. Headhunter became the first Russian-born firm to go for a US IPO since the imposition of sanctions following the annexation of Crimea in May 2019 and had a market capitalisation of around $200mn last year until Goldman Sachs paid $101mn this year for a 9.9% stake, quintupling the company’s valuation at the stroke of a pen. Source