Russia’s invasion of Ukraine has left many wondering how much worse M&A activity can get between the former superpower and North America.
Dealmaking between the two first dropped precipitously after President Putin’s February 2014 annexation of Ukraine’s Crimean Peninsula, and has barely registered a pulse since then.
Between 2004 and 2013, North America’s acquirers in Russia averaged 28 deals totaling USD 3.3bn per year. The chunkier transactions came in real estate, retail, natural resources, and tobacco. Morgan Stanley shelled out USD 1.1bn on St Petersburg’s Galeria shopping mall in 2012 and USD 1.2bn on Moscow’s Metropolis mall in 2013, the same year Philip Morris coughed up USD 850m for a 20% stake in Russian tobacco distributor, Megapolis.
However, since the Crimean invasion, M&A in Russia by North American companies has collapsed to an annual average in the single digits for a paltry USD 146m. This low includes 2019’s outsized USD 538m total, boosted by Toronto-based Kinross Gold’s [NYSE:KGC] USD 215m purchase of Russia’s Chulbatkan mining project and TJX Group’s [NYSE:TJX] USD 225m strike for a 25% stake in Russian discount clothing chain, Familia.
From Russia without love
Activity among Russian companies making acquisitions in North America has also plunged. In the decade before 2014, Russian acquirors on average inked 10.6 deals a year totaling USD 2.9bn. In the eight years since, Russian firms have averaged only 4.6 deals totaling USD 171m per year in North America.
The biggest of these came prior to the advent of 2008’s global financial crisis, featuring the 2007 acquisition of Canada’s LionOre Mining for USD 5.5bn by MMCNorilsk Nickel. Russian steelmaker Evraz Group also made a splash, stumping up USD 2.4bn for Oregon Steel Mills in 2006 and USD 4bn for IPSCO’s North American tubular business in 2008. Fast forward to today, the US and Canadian holdings of these metals giants are facing increasing scrutiny.
By contrast, Russian M&A activity in other countries besides North America, although weakened, has fared better. Since 2014, Russian acquirers have invested most of their rubles into countries that have stood by its side, namely India (11 deals totaling USD 13bn), Venezuela (two worth USD 2.85bn), Cyprus (five reaching USD 2bn) and Azerbaijan (three for USD 1.5bn). By number of deals, Russia has focused on Ukraine (31 deals since 2014), the US (28) and Kazakhstan (13). The question now is whether Russia’s decoupling from North America and the West furthers its pivot to nations adopting a more neutral or even supportive stance, such as China or India.
Russian for the exits
Many Western companies are rushing to divest assets in Russia following the introduction there of some of the most punitive economic sanctions ever seen. Uber Technologies’ [NYSE:UBER] planned sale of its Yandex.Taxi stake is to be accelerated. TJX says it will offload its Familia stake and ExxonMobil [NYSE:XOM] wants out of its Sakhalin-1 venture. On the face of it, increased M&A between the decoupling geographies could now happen, but who would buy in this environment? How can buyers transfer money to sellers after Western leaders stopped key Russian banks from accessing the Swift international payments system? While several ruble-rich buyers are said to be scouting for deals in Russia, the currency has lost half its value against the dollar in the past month. Moreover, the country’s authorities are restricting the ability of foreign investors to sell Russian assets. The dawn of Cold War II has arrived.