Mergermarket publishes the Ukrainian M&A roundtable reportMergermarket publishes the Ukrainian M&A roundtable report Report shows that doing a deal in Ukraine remains challenging despite the potential for market-beating returns London, 9 July 2008 --- mergermarket, the London-based independent mergers and acquisitions (M&A) intelligence service, published its Ukrainian M&A report today in conjunction with Concorde Capital and CMS Cameron McKenna. The report focuses on a Ukrainian mid market M&A roundtable discussion between a number of senior Ukrainian corporate and private equity executives, which was held in Kyiv during June 2008. Speakers divided on future Ukrainian M&A prospects Having shown a steady rise between Q1 2006 and the last quarter of 2007, Ukrainian M&A flow has since declined in the first half of 2008. However, according to Andrei Kolodyuk, Chairman of Aventures, a Ukrainian venture capital firm, while the boom market of 2006-2007 has definitely ended and loans have become more expensive, “this does not mean that markets have come to a halt. What attract investors to developing markets are their undercapitalisation and the subsequent ability to make money – and in many sectors of the Ukraine, this is still possible.” Olexander Martinenko, Senior Partner in CMS Cameron McKenna’s Kiev office reinforces this opinion, saying that “investors will continue looking for opportunities in Ukraine as it is one of the most promising markets where a respectable rate of return can be achieved.” However, Vladimir Zinevich, President of the national Ukrainian energy company disagrees with Mr, Kolodyuk’s and Mr. Martinenko’s sentiments. “At the present time, when the situation in the financial and debt markets is somewhat complex, I expect that we’ll see a quieter M&A market this year”, he says. Mid market transactions difficult to distinguish and mired by taxation issues As one speaker states, “In the Ukraine, we have very few companies with mid market-sized revenues (ˆ30-300m). Revenue in the eyes of an investor and revenue as it will be reported by the firm’s accountant are two completely different things.” Furthermore, as Mr. Martinenko points out, “there is little support for mid market-sized businesses by the state insofar as they are not regarded as important drivers of the overall economy.” Roman Zadavysvichko, Investment Banking Director of Concorde Capital adds: “The economy of the country must be supported and moved forward by medium sized and small companies. In the United States more than 75% of GDP is created by small and medium sized companies and yes, the state does have to play a role in supporting them. For it is through supporting the development of medium sized and small businesses at the right time that the state will be the winner in the long term. Special economic zones, preferential and/or simplified tax regimes as well as some kind of subsidy programmes are what are needed to boost deal flow in this area.” Another discussant – Karen Chiftalaryan, Investment Director at Aventures – sums up the mid market, saying that “small businesses are still somewhat in the shadows and are slightly underpaying taxes. However, there is no incentive for them to grow because as soon as such firms begin to become transparent and profitable, profits fall due to stifling bureaucracy as well as complex taxation regimes.” Potential purchasers should seek best practice due diligence processes, hire local advisors to boost their transactional prospects as well as keeping M&A transparent speakers advise Due diligence processes, deal transparency as well the employment of quality advisors were also discussed during the roundtable, with speakers informing the panel that potential acquirers in the Ukraine should undertake a proper due diligence process. Mr. Zadavysvichko echoed this sentiment, stating that “nowadays transactions are often so complex that everyone can make mistakes. However sometimes, to put it crudely, deals are made over a night, and the contracting parties burn their fingers on that night.” Mr. Martinenko highlighted one instance of a deal going awry because “the sellers simply didn’t understand that disclosure was for their own benefit and protection. They wanted to pretend that the company was in much better shape than it was in reality, and tried to hide this information from their own advisors.” “When conducting M&A, a lot of Ukrainian mid market firms like to save on advisory fees and do the paperwork in-house. This is an extremely painful process and causes a lot of problems, especially from a legal aspect” Mr. Martinenko says. In addition, Mr. Martinenko believes that full transparency is required during a typical transaction – “keeping transactional deals secret from a target company’s senior management creates bottlenecks” he explains. Contact information |
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