M&A Market Activity in Russia Falls to Three-Year Low

M&A Market Overview

The Russian merger and acquisition (M&A) market is undergoing prolonged stagnation. In 2024, approximately 383 transactions were completed — marking the lowest figure in over a decade. In the first quarter of 2025, the total transaction volume amounted to only $7.35 billion — a record low for three years. Despite this, the aggregate volume increased due to several major transactions (the sale of "Yandex," "Polymetal," and other assets), while the rest of the market exhibited weakness. Data indicates a reduction in the number of deals and a contraction in activity: most market participants note the absence of new large-scale projects. This statistics reflect the challenging economic situation in the country and the heightened risks for investors.

Reasons for Declining Deal Activity

Experts associate the decline in M&A with a set of fundamental factors. Firstly, the tightening of regulatory barriers has significantly complicated the exit of non-residents from Russian business: the regulations introduced at the end of 2024 entail hefty fines and additional payments to the budget, totaling up to 95% of the asset value, effectively blocking most transactions involving foreign capital. Secondly, high financing costs diminish project attractiveness: the Bank of Russia's key rate has been raised to 21%, making loans expensive. Thirdly, the uncertainty in the economic situation (geopolitical risks, high sanctions costs, and ruble volatility) complicates revenue and cash flow forecasting for target companies, increasing expected risks. Finally, investor participation has decreased: most companies wishing to exit the market have already carried out their plans, while remaining non-residents have suspended their exits due to stringent requirements.

Key factors restraining M&A activity at this stage can be summarized as follows:

• Regulation of transactions with non-residents. New rules require significant payments for asset exits: commission fees plus fines create a considerable discount from the actual sale value. Many investors now deem such conditions unacceptable.

• High interest rates. The cost of borrowing has increased due to the Central Bank's decision to maintain the key rate at record levels. This raises transaction costs and reduces the expected profitability of projects.

• Economic uncertainty. Inflation, currency fluctuations, and unpredictable demand worsen transaction conditions. It is difficult for investors to conduct financial analysis and confidently assess target companies under such circumstances.

• Bankruptcies and legal risks. The number of defaults in the market is increasing, leading to additional derivative lawsuits against controlling persons. This creates a negative backdrop: buyers are wary of acquiring companies with troubled balance sheets.

All these factors collectively significantly limit the number of new M&A transactions and make the exit strategy for deals riskier for investors.

Regulation and Restrictions

The tightening of state control over transactions has become a separate pressing factor. In addition to the aforementioned requirements for non-resident exits, mergers and acquisitions often require complex antitrust and industry approvals. Anti-corruption checks and restrictions on the purchase of strategic assets further complicate the process. As a result, many companies refrain from engaging in transactions: foreign investors now prefer to freeze plans for selling Russian assets, while domestic market participants primarily operate under government participation schemes or focus on the internal market. The absence of foreign capital exacerbates the shortage of transactions, causing the M&A market to rely increasingly on the participation of Russian investors.

Macroeconomic Factors

The state of the economy and politics directly impacts the M&A market. In recent years, GDP growth has slowed, and inflation remains above the target level, forcing the Central Bank to maintain high key rates. Expensive ruble-denominated debt diminishes the investment appeal of projects: high borrowing costs reduce transaction profitability. At the same time, currency restrictions and difficulties in repatriating profits continue to undermine market liquidity. The abrupt tightening of monetary policy has devalued a portion of assets, and heightened risks along with the burden on banks' balance sheets, including funds accumulated by foreign companies, have created additional pressure on business valuations. Investors are compelled to raise their required returns, rendering transactions impractical under current conditions.

Technical Features of Transactions

In a turbulent environment, the M&A process has become more complicated. Conducting a thorough financial analysis and evaluating companies involves high uncertainty: forecasts of future profit streams become less reliable due to fluctuating demand and external shocks. When calculating deal valuations, analysts incorporate significant risk discounts, causing the average valuation of acquired businesses to often fall below planned levels. Additional complications arise from verifying ownership chains and regulatory compliance checks: transactions take longer and require extensive legal due diligence. In such conditions, unconventional financing structures may emerge — for example, a predominance of equity over debt financing or the use of staggered payments (earn-outs). Overall, the technical aspects of transactions play a decisive role at this time: any discrepancies in financial indicators can lead to deal cancellations or changes in terms.

Sectors with Noticeable Decline

The M&A crisis has not affected all industries equally. The most significant reduction in activity is observed in traditional capital-intensive sectors. For instance, consolidation in the mining and energy sectors has slowed due to sanctions restrictions and increased risk assessments for such projects. A similar situation is seen in the banking sector: regulatory pressure and intensifying competition are reducing the number of mergers between banks. Transactions in industry and construction also slow down: last year, sales of foreign assets primarily occurred in development and engineering, whereas such outflows have nearly vanished now. In contrast, the IT and consumer markets (retail, FMCG) remain dynamic — experts anticipate potential deal drivers in these sectors. However, even in these segments, companies primarily seek to retain capital and diversify risks before pursuing M&A.

Major Transactions and Key Players

Despite the overall decline, individual large transactions continued to occur in the market, facilitated by the participation of significant players. In 2024-2025, the most notable included: the acquisition of the Russian segment of "Yandex" from Yandex N.V. by a consortium of private investors ($5.2 billion), a controlling buyout of "Acronis" holding ($4.0 billion), and the complete absorption of the mining company "Polymetal" (approximately $3.7 billion). In early 2025, Mikhail Friedman and Pyotr Aven sold 45% of "Alfa-Bank" to partner Andrey Kosogov for $1.75 billion, while the state corporation "Rostec" acquired the business quarter "Rostec-City" for approximately $0.82 billion. Traditionally, large institutional players and state funds are the main buyers in the Russian market. Interest in deals is shown by both private investors (private equity funds, business angels) and state corporations, but the latter are selective about target assets based on strategic importance. Foreign investors have effectively exited the leading roles, leaving domestic capital to dominate recent significant transactions.

Forecast for 2025

The majority of analysts anticipate further quietude in the M&A sector. According to their estimates, the number of transactions will continue to decline in the first half of 2025 due to the persistent stringent financing conditions and regulatory limitations. Major deals are not expected in the near future: most enterprises prefer to hold onto assets, awaiting improved economic conditions. At the same time, experts note a growing interest in public-private partnership projects and partial redistributions of previously acquired foreign assets. The dynamic segments of the economy — IT, retail, and consumer sectors — may act as catalysts for activity. In 2025, investors will increasingly focus on portfolio diversification and long-term strategies, prioritizing preferred investment directions. Expected stabilization of rates and a softening of sanctions pressure could only partially revive the M&A market by the end of the year; however, the number of transactions is unlikely to return to pre-crisis levels.

The Russian M&A market is under pressure from several negative trends. The tightening of requirements for transactions with foreign investors and the high cost of borrowed capital restrain investor activity and dictate a more conservative strategy. Combined with macroeconomic uncertainty and legal risks, this compels companies to postpone major mergers and acquisitions. As long as these restrictions persist and there is reluctance to sell assets at a loss, the deal sector will remain in recession. Investors and businesses are advised to adapt their financial analysis to current realities and carefully assess the risks of each transaction. Under such conditions, diversification of investments and the selection of the most promising sectors that can provide acceptable returns remain key factors.