In this Kyiv Post blitz interview, Myron Rabij, partner at the Ukrainian practice of international law group Salans, discusses mergers and acquisition activity and trends on the Ukrainian market. In the course of the interview, the American-born lawyer provides valuable advice to both buyers and sellers.
Kyiv Post: Do you see the Ukrainian M&A market recovering from pre-crisis levels? If so, when and what sectors will be most attractive?
Myron Rabij: Yes – eventually, but this is a long-term view. There are no easy fixes in the global economy and this extends to Ukraine.
Ukrainian economic recovery requires a combination of global economic recovery and real structural Ukrainian economic and political reforms. When will this happen? I am not a fortune-teller. Attractive sectors currently are agriculture and energy, and less so, hotel development and the IT industry.
KP: If European banks were big buyers of Ukrainian assets before the crisis, who are the main buyers on the market today, who will be buying in coming years and what countries are they from?
MR: European banks were big buyers of Ukrainian banks – a very focused sector group. Who will be buyers depends on what assets in what sector are being sold.
It will remain a diverse group of folks but there is and will be one common denominator: cash is king. Investment is driven by equity financing nowadays and even in respect to bank lending, the equity ratio in projects is now quite significant.
KP: For the selling side, is now an optimal time for a Ukrainian business owner to sell? Or would it be best to wait a year or two?
MR: Some may say that Ukrainian businesses are waiting for the results of the Ukrainian parliamentary elections but I don’t agree with that. I do not anticipate any earth-shattering developments in the next year or two that would suggest strategic changes. More likely prices will continue to gradually drop as Ukrainian seller expectations continue to keep dropping closer to the earth.
KP: Could you identify the top five strategies and hands on changes domestic business owners should start adopting today to ensure they can maximize the sale price of their assets to an investor in the future?
MR:
1. Conduct your own “due diligence” – identify and fix your problems;
2. Restructure your assets into tax efficient special purpose vehicle holdings that are easily and efficiently sold at the corporate level with minimum legal “fuss”; and
3. Create a three-year record of international audits;
4. Focus on income generation, your margins, profitability and market share. You have to be a viable business, not a “promise” of things to come;
5. Sell off “stale” assets – it is unlikely they will improve over time – go on a diet and look fit and trim.
KP: What are the top five risks investors face when buying assets in Ukraine and what strategies and measures can they adopt to main ensure that they get a fair price for assets bought in Ukraine while minimizing risks of potential problems related to the assets?
1. Skeletons in the closet – are generally the result of incomplete, selective or hurried “budget” due diligence – penny-wise and pound foolish, I’m afraid, particularly as law firm and audit firms generally do not expect to make a lot of profit from due diligence exercises and can provide very attractive pricing.
2. Due diligence should include a “corruption/fair practices” review. You can no longer close your eyes as to how and under what circumstances your seller acquired its assets, how employees have been paid and how counter-parties make their margins. The past can haunt you.
3. Do not rely on the political connections or “good standing” of your Ukrainian business partner. Political love affairs come and go with much frequency. Focus on the “business” of your Ukrainian business partner.
4. Keep your buyer interested in the business after closing either through a minority stake or a significant retention of the purchase price for a year or two, or a combination of both.
5. Don’t be in a hurry to close and be wary of sellers who are. Patience is its own reward as they say.
