Severstal closes deal to purchase A Group metal trading company
MOSCOW. April 4 (Interfax) - Severstal has acquired the distribution business of the A Group corporation from business structures belonging to Alexey Zaitsev (founder and CEO of the company), Severstal said in a statement.
The company did not disclose the terms of the deal.
The Unified State Register of Legal Entities shows that Severstal's new subsidiary, A Group LLC, was registered on April 3.
"The purchase and subsequent integration of the distribution business of A Group is consistent with Severstal's marketing strategy and will strengthen the company's leadership in the Russian market. By increasing the sales volume of our distribution division to 3 million tonnes in 2024 (target combined sales of Severstal Distribution and A Group), we will become one of the three largest players in this market, and our federal sales network will have warehouse facilities throughout almost the entire country," Severstal CEO Alexander Shevelev said.
The company intends to retain third-party purchases by A Group, as well as ensure the fulfillment of all concluded contracts for the supply of steel products and maintain the structure of the assortment and geography of the metal trader's supplies within the framework of the instructions issued by the Federal Antimonopoly Service in approving the transaction.
Severstal will also retain the A Group brand itself and plans to develop it.
A Group's plant for the production of steel structures and sandwich panels (up to 2,000 tonnes and 40,000 square meters, respectively) in the Northwestern Federal District was not included in the perimeter of the transaction, Romanovsky explained.
"The priority within the development of sales in the secondary market is the development of the distribution network. Therefore, this strategic fit within the framework of this particular transaction was not very suitable for us," he commented on the acquisition of only the distribution business, adding that at the moment the company has no plans to buy out the remaining A Group assets.
The new asset will be able to partially compensate for the retired European sales (last year Severstal sold its European distribution network to SIA Severstal Distribution) - 900,000 tonnes of sales in Russia will be added to the company's sales volumes, Romanovsky said.
In total, Severstal Distribution shipped 1.5 million tonnes of metal in 2023, while A Group shipped 1.1 million tonnes.
"If we talk about the market of sales from the warehouse, then according to 2023 results, the share of Severstal Distribution was 5.7%, the share of A Group - 4.3%. That is, Severstal's share in the secondary market of rolled metal products will almost double and will amount to about 10%, the executive said.
Commenting on the synergistic effect of the deal, Romanovsky noted the potential for increased sales in the regions where the company operates, and drew attention to the further development of its presence in the Urals, the central part of Russia, Siberia and the Far East.
Speaking in general about the potential for M&A deals in the distribution sector for steelmakers in Russia, Romanovsky noted that the trend towards such deals continues, as evidenced by foreign markets.
"We are looking at similar markets in Europe, Asia and America and, to all appearances, the trend towards such M&A strategies will continue. Usually distribution markets are characterized by consolidation at a certain point, and consolidation not around a few players, but around 5-7 super large players," he said. "This trend will definitely happen. It is a question of intensity - we will see," Romanovsky said.
A Group is one of the largest metal service corporations in Russia and a leader among metal traders in the pipe industry. The company's network of metal centers has an infrastructure of 24 warehouses with an area of about 290,000 square meters. Sales volume in 2023 amounted to more than 1.2 million tonnes of steel products, with sales primarily to the construction industry. The company's product line includes more than 5,000 product names and more than 250,000 tonnes of steel products in constant availability in warehouses.
At the end of last year, A Group's revenue to RAS increased by 7.6% to almost 76 billion rubles, net profit by 43% to 1.5 billion rubles, and profit on sales more than doubled to 2.7 billion rubles.