In this Kyiv Post interview, Avellum law group managing partner Mykola Stetsenko says that merger and acquisition activity has recovered from the plunge experienced during the 2009 global recession and continues to grow steadily.
Kyiv Post: Do you expect the Ukrainian merger and acquisition market to make a near-term recovery to pre-crisis levels? If so, when and what sectors will be most attractive?
Mykola Stetsenko: In our view, the M&A market has already recovered and, in fact, activity is on the rise across many sectors. Further consolidation continues in the agriculture sector. Fast-moving consumer goods, telecoms and real estate are also very active.
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?
MS: Private equity investors are very active now largely due to lack of capital markets opportunities for Ukrainian issuers. However, we also see some Western strategic investors and cash-rich Ukrainian investors searching for under-valued opportunities. There is moderate interest from Russian investors, but I would not overestimate it.
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?
MS: In my view, if the business is strong and has enough working capital, it is not a good time to sell now. Recovery of capital markets for Ukrainian issuers (initial public offerings and Eurobonds) will bring better pricing opportunities.
However, now is a great time to consolidate and if a business has surplus cash to spend, it should seriously consider increasing its market share, vertical integration or diversification.
KP: For the buying side, is now an optimal time to for a foreign investors to buy an asset in Ukraine, or would it be best to wait a year or two?
MS: Now is a great time to invest in Ukraine, if Ukraine’s risk profile as a country is acceptable to the investor. The government is gradually deregulating the economy. The business environment is bound to improve in the mid-term. Entering the Ukrainian market now will inevitably allow the foreign investor to reap all the benefits of a pioneer.
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?
MS: Create a transparent and consolidated corporate structure for the group. Start preparing regular IFRS accounts on a consolidated basis. Do pre-sale financial and legal due diligence to uncover and resolve all hidden problems. Employ western educated top management. Hire a reputable investment bank to develop a corporate finance strategy for the business.
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?
MS: The main risks are the general regulatory environment and bureaucracy. Deal with this by hiring Western-educated or trained management and engage in active dialogue with the government of Ukraine.
Another risk is the unpredictable court system. Minimizing risks in this area can be achieved with proper internal controls and regular external legal audits. To avoid problems related to an unclear history of an asset, get a proper legal and financial audit at the very beginning.
Avoid unreliable partners. Thoroughly check the identities and reputations.
As for unfair competition, clearly communicate such problems to the highest levels of Ukrainian government.
