FOCUS: Yandex’s acquisition of Azbuka Vkusa to cut costs, produce synergy

By Yekaterina Yezhova

MOSCOW, Jun 21 (PRIME) -- Yandex’s potential 20–25 billion ruble purchase of Azbuka Vkusa would create excellent synergies for its food delivery and ready meal service Yandex.Lavka and cut its costs as both businesses target the premium audience, analysts said.

“Azbuka Vkusa could be potentially interesting for Yandex that actively develops services Yandex.Lavka and Yandex.Eda. Yandex’s delivery segment shows impressive dynamics. Total e-commerce gross merchandise value (GMV) of Yandex.Market, Yandex.Lavka, and Yandex.Eda rocketed by 186% on the year in January–March. The merger may produce synergy for the development of this business and be good for the costs,” investment company IC RUSS-INVEST analyst Dmitry Bedenkov told PRIME.

Vitaly Manzhos, a senior risk manager at investment company Algo Capital, said that the acquisition would have looked non-core for the IT giant five years ago, but in the time of active development of ecosystems, it looks a logical extra link to the food delivery service and other related services.

Media quoted sources earlier this month that Yandex is negotiating acquisition of Azbuka Vkusa that boasts a strong position as a food seller to the premium audience to underpin Yandex.Lavka. The deal will reduce purchasing prices for Yandex.Lavka, because Azbuka Vkusa is one of its partners whose ready meals it has been selling for several months.

“The acquisition can amount to 20 billion rubles without debt, and some sources mentioned higher sums. If we apply the enterprise value/EBITDA multiplier of retailers X5 and Magnit, Azbuka Vkusa may cost 20–24 billion rubles,” investment company Veles Capital analyst Artyom Mikhailin said in a note.

He added that spending under 25 billion rubles will not be heavy for Yandex that has a good reserve of liquidity.

The deal’s main goal will be to strengthen the foodtech segment of the Internet company. Azbuka Vkusa runs more than 170 stores, located mainly in Moscow and the Moscow Region, has a strong brand and a well-developed range of own trademarks and ready meals, Mikhailin said.

Azbuka Vkusa’s 2019 sales, calculated under International Financial Reporting Standards (IFRS), amounted to 65.4 billion rubles with the gross profit of 24.3 billion rubles. EBITDA stood at 2.7 billion rubles, and the EBITDA margin at 4.1%.

For 2020, the retailer showed only Russian Accounting Standard (RAS) figures so far – revenue amounted to 75.2 billion rubles, EBITDA to 3.3 billion rubles, and the EBITDA margin to 4.3%.

“Given the figures of the previous years, we assume that the company’s IFRS EBITDA was close to 4 billion rubles in 2020. The retailer has a heavy debt burden, the net debt/EBITDA ratio stood at 3.3õ under RAS, and net debt amounted to 10.9 billion rubles,” Mikhailin said.

Yandex and Azbuka Vkusa also have the same shareholders. “The retailer’s main shareholders are founders Maxim Koshcheyenko and Oleg Lytkin with 42.6% of capital, while 41.1% belong to the firms of Roman Abramovich’s Millhouse and Alexander Abramov’s Invest AG. Azbuka Vkusa’s shareholders considered an initial public offering in 2017–2018, but it did not happen. The businesses of Abramovich and Abramov are also shareholders of Yandex after its recent secondary public offering,” Mikhailin said.

He added that competition gets keener gradually as the role of online channels rises and new players appear.

The U.S. market saw a similar deal in 2017 when tech giant Amazon acquired premium brick-and-mortar retailer Whole Foods for U.S. $13.7 billion. It became a milestone in the companies’ rivalry for leadership on the country’s market of grocery retail.

(72.2216 rubles – U.S. $1)

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