In mid-June, the group "Safmar" Mikhail Gutseriev announced the sale of the German Ceconomy Group 15% in the retailer M.Video for € 258 million. Under the terms of the transaction, the financial and industrial group also received the Russian business MediaMarkt ("daughter" Ceconomy). We are talking about 42 chain stores and several dozen corners in the supermarkets Metro Cash & Carry, the closure of which the company announced right after the deal. As a result, the billionaire controls almost 30% of the consumer electronics market. A unique deal is likely to be the last deal for "Safmar" in this market.
The market of household appliances, consumer electronics and mobile devices in Russia has been aggressively consolidated since 2017. However, this trend is typical not only for Russia, but for the whole world. In our country we also see, for example, the "collapse" of independent cellular retailers. The fact is that the scale effect is very influenced by this. Therefore, the only development model is the absorption of competitors. Another thing is that in the western markets, traditional players have already lost the battle with online. In Russia, the market leaders (M.Video, Eldorado, DNS) went online on time and kept the opportunity to compete with the net online (Citylink and Ozon.ru).
Several years ago, "Safmar" managed to quickly navigate, taking on the role of a player that unites this market. Although the very history of the company's arrival in the business of home appliances and electronics is unambiguously successful. "Technosila", which was given to "Safmaru" along with MDM-bank, ceased to exist, "Eldorado" in 2017 reduced revenue. At the same time, Safmar took a strategically correct decision to consolidate the business around M.Video. This network has long been a model of efficiency in terms of profitability and conservatism of financial policy - in the good sense of the word. In addition, it has two components that are almost never found in Russian retail. First, both shareholders and top management of the company have a real strategic vision. Founder and head of the network Alexander Tynkovan F 126 a few years ago decided to remove M.Video from pure offline and develop it as a multi-channel business with an emphasis on the ever increasing share of online. However, in terms of online sales in 2017, M.Video and Eldorado lost to the DNS group of companies, however M.Video managed to launch the Market.ru marketplace, which now competes with the Beru.ru site of Yandex and Sberbank.
The second feature (which is even more rare in Russian retail) is the highest level of corporate responsibility, transparency and respect for the rights of minority shareholders. If the deal on the purchase of Safdrom M.Video was not conducted so cleanly, smoothly and with respect to minority shareholders, Media-Saturn-Holding (operates MediaMarkt) would not risk acquiring a minority stake in the company with a unique premium to the market. The M.Video rating, according to which the Germans got a share, was almost three times higher than the current market capitalization - there were no such multipliers for public companies in the Russian retail sector.
However, the business MediaMarkt in Russia was unprofitable. Why? Accustomed to actively investing in empty markets, and then withdrawing cream from them, the company lost its flexibility and after the 2008 crisis became uncompetitive in the fight against Russian players, who quickly grew and actively invested in the development of online sales. Even worse things went after 2014 because of the next jump in the euro. In addition, the market in Russia differs from the European one not only because of more aggressive price competition, but also increased requirements for logistics because of the large distances and proximity of China. International companies understand that they can not succeed in a highly competitive Russian market. MediaMarkt has completed the development cycle in Russia, a signal for retailers such as Metro and Auchan, who have already lost leadership in their segments and continue to rapidly cut sales and revenues.
What does this consolidation mean to the consumer? First, consolidation allows the retailer to get more attractive prices from suppliers. Due to its size, cost reduction and efficiency improvement, the combined company will be able to positively influence prices. At the same time, the risks of monopolization on the market are objectively low, because online is a good vaccination against this "vice". In addition, we should not forget about cross-border trade, which, thanks to the lack of VAT and economies of scale in production, allows the buyer to provide the lowest prices.
This transaction will not affect the talks on a possible partnership with the Chinese Alibaba, which became known at the end of last year. I think that the company Goods.ru, which works quite successfully now, can be of much greater interest to the company. It is important to understand that the price at which the Germans bought a stake in the combined company is too high for the Chinese. Therefore, it is unlikely that we will see a deal with them in the near future. But this does not mean that "Safmar" will not want to attract a new investor to the company.
Also I do not think that we will see in the near future new mergers and acquisitions in the home appliances and electronics market with the participation of Mikhail Gutseriev. Now Alexander Tynkovan has a company that grew by about 70%. Now it is necessary, at least, to keep its indicators at the level reached by the M.Video network. In this case, it is very important to digest what has already been absorbed and justify that price and those aggressive multiples that are now embedded in the company's valuation by investors.