Open for Business: M&A in Ukraine

Ukraine dealmaking weathers stormy year to post improved outlook for 2016.

A new report by Aequo and Mergermarket reveals that prospects for Ukrainian dealmaking in 2016 are positive, despite a challenging 2015 which saw deal volume decrease by 24% to 26 deals and disclosed values reach €134m ($150m), compared to €768m ($831m) in 2014.

In a World Bank report released in January, Ukraine’s economy is predicted to make a modest rebound (from -12% in 2015) with growth of 1% in 2016 and 2% in 2017 and 2018. This would be supported by an easing of the armed conflict in the east and continued progress on Ukraine’s IMF-backed reform programme, the World Bank forecasts.

Overall, these efforts provide a supportive climate for M&A activity in 2016 and beyond. “Subject to the continuing stabilisation at the macro level, we expect more investment in Ukraine this year,” says Denis Lysenko, a managing partner at Aequo law firm.

The green shoots of Ukraine’s recovery can be traced back to September 2015, says Anna Babych, a partner at Aequo, who points out the firm has seen a sharp rise in the number of requests for proposal for M&A in recent months, from local players and from foreign law firms . Broadly, there are two types of M&A deals in Ukraine – foreign-to-foreign transactions, which are larger in size, and the purely mid-size local deals. The latter tend to be mid-sized deals of the $20m-30m magnitude.

“Foreign-to-foreign deals are more frequent now,” says Babych. “Although the M&A activity has been undermined by the economic downturn, there is a strong impression that Ukraine has passed the bottom of the cycle.”

Further key findings from the report include:

• Financial services is the strongest sector for deals. In 2014-15, it contributed 43% of total M&A value, up from 7% in 2013-14. More financial services deals are expected in 2016 as the banking sector continues to consolidate.

• Energy, mining and utilities is the second largest sector by deal value. It made up 29% of all M&A in 2014-15 by value and 13% by volume. The main drivers are privatisation, distressed deals and efforts to replace Russian gas supply.

• TMT deals also featured prominently, with notable Ukrainian IT start-ups supporting the sector, making it attractive to both private equity and strategic investors.

• E-commerce recorded growth rates of more than 30% in the last five years, in US dollars, and still retains significant upside potential as both internet penetration and online shopping’s share of total retails remain substantially lower than regional peer levels.

About Mergermarket

Mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service with an unrivalled network of dedicated M&A journalists based in 62 locations across the Americas, Europe, Asia-Pacific, the Middle-East and Africa. Unlike any other service of its kind, Mergermarket specializes in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database – resulting in real revenues for clients. Visit www.mergermarket.com.