Despite the supposed increase of the total value of M&A deals in Ukraine in 2011, the second half of 2011 will not meet expectations. Currently, the M&A market in Ukraine is still highly dependent on and follows the macroeconomic situation.
Investors’ interest in Ukraine is still affected by the financial crisis and its consequences. At the same time, many industries showed a certain amount of revival in first half 2011. The hot M&A sectors in Ukraine in 2011 are steel, financial, chemicals, agriculture, food and beverage, retail and TMT. Activity in the energy sector will depend on the government’s privatisation policy.
A number of distressed domestic assets or businesses will still be offered by domestic market players in many industries seeking financing. Experts believe that at least half of all transactions will be leveraged. As a result, Russian-based banks and some European financial institutions will become the primary lenders.
The domestic capital market remains largely illiquid for the purpose of financing any substantial M&A transactions. Due to the unstable banking system in Ukraine, debt financing (both in hard currencies and in hryvnas) appears expensive and difficult to obtain for market players. Equity capital therefore remains the key source of financing M&A transactions.
However, it is worth mentioning that a number of private equity funds still remain active and have declared their intent to invest into Ukraine.
There has not been much progress in financing Ukrainian business through IPOs in the international capital markets, although the market has seen some movement. Experts predict that IPOs will be planned by several Ukrainian companies in different sectors, mainly food and agriculture. However, given the latest macroeconomic slowdown, IPOs most likely will be postponed to 2012.
Ukrainian business groups (both large and medium-sized) will continue the processes of restructuring their assets or business divisions aimed at optimisation of group structure that also influences domestic M&A processes.
The M&A market in Ukraine is a purchasers’ market and considerations offered for Ukrainian assets remain lower than what sellers expect. This trend reduces the total number of M&A deals closed, compared to the number of deals announced or negotiated. However, experts predict that M&A deals will probably increase in value once stable recovery trends appear.
Cross-border M&A deals make up the majority of the aggregate volume of M&A transactions in Ukraine. Some of the major investors in the Ukrainian market during the past years originated from Canada, Russia, Germany, Poland, the UK, Sweden and Switzerland.
Ukrainian legislation generally provides equal opportunities for both domestic and foreign investors. There are only few restrictions on foreign investments (e.g., foreign companies cannot hold ownership title to farmland, even when the currently effective moratorium on the sale of farm land is lifted).
Ukraine is a party to over 40 bilateral agreements on cooperation and mutual protection of investments, which provide certain additional protection for foreign investments, including internationally recognised dispute resolution mechanisms (e.g., ICSID).
There is no specific Act regulating public or private takeovers and mergers in Ukraine. The concept of public bids is also underdeveloped in the Ukrainian legal framework (the applicable laws do not differentiate recommended and hostile bids). Furthermore, no specific corporate law and regulations have been adopted or amended in recent years to decrease the adverse effects of the financial crisis on the Ukrainian business environment (with some limited exceptions in the regulatory environment for Ukrainian banks).
The current financial Antimonopoly Committee of Ukraine (ACU) thresholds for obligatory merger clearance are comparatively low and, in practice, most mid-size deals require merger clearance in Ukraine. This affects both the timing of transactions (additional 1 -1.5 months for Phase I) as well as the possibility of successful closing in general. The latter seems topical for transactions involving monopolised markets (e.g., food production and food retail).
Transactional work normally includes a preparatory stage covering due diligence and pre-sale restructuring, the main stage involving the negotiating process and closing and, sometimes, post-deal integration. As a rule, legal due diligence covers a limited set of issues depending on the target’s activities and the deal structure. One of the latest trends illustrating the unstable M&A market is the timing of transactions: the deal is either done very quickly or its preparation and negotiation may take around 12-18 months.
Investors’ interest in Ukraine is still affected by the financial crisis and its consequences. At the same time, many industries showed a certain amount of revival in first half 2011. The hot M&A sectors in Ukraine in 2011 are steel, financial, chemicals, agriculture, food and beverage, retail and TMT. Activity in the energy sector will depend on the government’s privatisation policy.
A number of distressed domestic assets or businesses will still be offered by domestic market players in many industries seeking financing. Experts believe that at least half of all transactions will be leveraged. As a result, Russian-based banks and some European financial institutions will become the primary lenders.
The domestic capital market remains largely illiquid for the purpose of financing any substantial M&A transactions. Due to the unstable banking system in Ukraine, debt financing (both in hard currencies and in hryvnas) appears expensive and difficult to obtain for market players. Equity capital therefore remains the key source of financing M&A transactions.
However, it is worth mentioning that a number of private equity funds still remain active and have declared their intent to invest into Ukraine.
There has not been much progress in financing Ukrainian business through IPOs in the international capital markets, although the market has seen some movement. Experts predict that IPOs will be planned by several Ukrainian companies in different sectors, mainly food and agriculture. However, given the latest macroeconomic slowdown, IPOs most likely will be postponed to 2012.
Ukrainian business groups (both large and medium-sized) will continue the processes of restructuring their assets or business divisions aimed at optimisation of group structure that also influences domestic M&A processes.
The M&A market in Ukraine is a purchasers’ market and considerations offered for Ukrainian assets remain lower than what sellers expect. This trend reduces the total number of M&A deals closed, compared to the number of deals announced or negotiated. However, experts predict that M&A deals will probably increase in value once stable recovery trends appear.
Cross-border M&A deals make up the majority of the aggregate volume of M&A transactions in Ukraine. Some of the major investors in the Ukrainian market during the past years originated from Canada, Russia, Germany, Poland, the UK, Sweden and Switzerland.
Ukrainian legislation generally provides equal opportunities for both domestic and foreign investors. There are only few restrictions on foreign investments (e.g., foreign companies cannot hold ownership title to farmland, even when the currently effective moratorium on the sale of farm land is lifted).
Ukraine is a party to over 40 bilateral agreements on cooperation and mutual protection of investments, which provide certain additional protection for foreign investments, including internationally recognised dispute resolution mechanisms (e.g., ICSID).
There is no specific Act regulating public or private takeovers and mergers in Ukraine. The concept of public bids is also underdeveloped in the Ukrainian legal framework (the applicable laws do not differentiate recommended and hostile bids). Furthermore, no specific corporate law and regulations have been adopted or amended in recent years to decrease the adverse effects of the financial crisis on the Ukrainian business environment (with some limited exceptions in the regulatory environment for Ukrainian banks).
The current financial Antimonopoly Committee of Ukraine (ACU) thresholds for obligatory merger clearance are comparatively low and, in practice, most mid-size deals require merger clearance in Ukraine. This affects both the timing of transactions (additional 1 -1.5 months for Phase I) as well as the possibility of successful closing in general. The latter seems topical for transactions involving monopolised markets (e.g., food production and food retail).
Transactional work normally includes a preparatory stage covering due diligence and pre-sale restructuring, the main stage involving the negotiating process and closing and, sometimes, post-deal integration. As a rule, legal due diligence covers a limited set of issues depending on the target’s activities and the deal structure. One of the latest trends illustrating the unstable M&A market is the timing of transactions: the deal is either done very quickly or its preparation and negotiation may take around 12-18 months.