Small business owner lands $1 billion prize after West’s exodus from Russia

Entrepreneur Alexey Sagal has had possibly the most successful year and a half of his career, with his Arnest Group becoming one of the top beneficiaries of the exodus of international businesses from Russia following President Vladimir Putin’s invasion of Ukraine.

Arnest’s newly acquired assets are worth about $1 billion, according to a Bloomberg Billionaires Index estimate. While the flurry of deal-making hasn’t yet made Sagal, 56, a billionaire, it has rocketed his group into the upper echelons of the Russian business world.

The company was a finalist in the bidding for Carlsberg A/S brewery’s business in Russia, offering almost $800 million before the government took the unit under its management and installed an ally of Putin to run it, Interfax news service reported last month.

One month later, Arnest walked away with Heineken NV’s Russian operations, including seven breweries, that it got for €1 ($1.08) and the promise to repay €100 million in debt.

Before that, Arnest purchased the assets of cosmetics company Oriflame, and packaging group Ball Corp’s unit in Russia for $530 million.

“Neither Arnest nor any of the acquired companies are publicly traded, and therefore it is difficult to say without specialized procedures what a fair market valuation of these assets would be,” said Sagal in emailed answers to questions from Bloomberg News.

His rise is an example of how the war is changing Russia and its business landscape, allowing newcomers to gain previously unreachable wealth and power.

Sagal as well as other entrepreneurs have been picking up the pieces from the conflict after more established billionaire businessmen were sidelined by international sanctions imposed over the invasion.

The restrictions turned business leaders who’d traditionally dominated the market into toxic counterparts for international firms in any deals. The new generation of buyers often have been in business for decades, in some cases at the operations they purchased.

“The exodus of foreign companies from Russia has created an opportunity for the Kremlin to supplement the class of tycoons from the 1990s with the class of 2023,” said Chris Weafer, chief executive officer of Macro-Advisory Ltd. There is “a new generation of business leaders who owe their fortune to it.”

Carlsberg’s press service declined to comment. Heineken’s press office referred to its August statement about the sale of its Russian operations.

Sagal, who hails from Nevinnomyssk, a city of 115,000 in Russia’s south, kept a low profile before his deals with Ball and Heineken. All his business activities were tied to a Nevinnomyssk household chemicals factory built in 1971 and renamed Arnest after the Soviet Union’s collapse. He began to distribute the factory’s products through his firm in 1996.

The business went so well that the plant’s then-director offered him a spot on the board, and in the early 2000s, Sagal with partners accumulated a controlling stake in the company, eventually buying another plant, he said in an interview to RBC daily.

With Sagal at the helm, Arnest’s production volumes have increased 15 times and grown into Russia’s biggest producer of aerosol products with a market share of more than 50%, according to the country’s Perfumery and Cosmetic Association. In addition to its products, like the hairspray Prelest (which means “charming”), it is manufactured for international companies like Unilever PLC, Beiersdorf AG and L’Oreal.

Sagal’s former wife, Elena, was the general director of Arnest in the 2000s before serving in the upper chamber of parliament for several years as a member of the ruling party and continues to be his business partner. In November last year, two months after Arnest bought Ball’s assets, Putin awarded Sagal with the Order For Merit to the Fatherland in the second degree, a state medal that recognizes outstanding contributions to the development of Russian statehood, its economy and society.

Aside from being involved in different businesses, Sagal also once owned a breeding stud farm in Russia’s Stavropol region that held a horse presented to Putin by an Abu Dhabi sheikh, Forbes Russia reported in 2014.

In 2022, the Kremlin banned foreign investors from selling Russian assets without approval from a special government commission. It ordered assets to be sold at a discount of at least 50% of market value as Russia sought to discourage a stampede of foreign companies out of the country. Those steps played into the hands of buyers like Sagal.

This year, new rules were introduced to require contributions to the federal budget of at least 10% of the market value of a company seeking to exit Russia, along with the resumption of capital controls. The government expects to receive 114.5 billion rubles ($1.2 billion) in fees from the sale of business assets in Russia by foreign companies in 2023.

Sagal intends to remain the owner of the newly acquired assets for the long haul.

“These are not speculative, but strategic investments for us,” he said.