October 23, 2014, 22:10 | Business
Until the political situation stabilizes, the country will not see any investment.
The market of mergers and acquisitions in Ukraine fell to a level that it did not reach even during the global financial crisis and the downturn of the Ukrainian economy in 2009-2010. In nine months, a total of 73 M&A agreements were concluded with Ukrainian buyers, sellers or assets, according to data from the international company Dealogic. For comparison: in three quarters of 2009, 331 deals were made. Since then, their number has been declining every year, reaching the bottom this year.
This happened for obvious reasons – as a result of political instability caused by two extraordinary elections within one year, and clashes in the east of the country. “Most investors expect stabilization of the political situation in Ukraine before investing any funds.” The agreements that were concluded are either agreements with which negotiations started a year ago and which were simply brought to a logical conclusion, or were forced.
Agreements with Ukrainian IT startups can be classified as long-planned. For example, the Odessa-based manufacturer of mobile applications and games SoftTechnics was acquired by the American company Intersog. The Ukrainian startup Advice Wallet, which created an application with a customer loyalty program, sold a share of the Russian venture fund Life.
The sale can be called a forced sale, to which the owners were prompted by a surge of anti-Russian sentiment in Ukraine. For example, the sale by the Russian company “LUKOIL” a network of 240 gas stations and six oil depots, which were on the balance sheet of the subsidiary company “LUKOIL – Ukraine”. “After numerous cases of boycotts of its gas stations, the Russian company conducted a technical, schematic transaction that will allow it to formally change the owner and carry out rebranding.” The amount of this deal is $300 million, which promises to make it the biggest deal of the year for M&A with Ukrainian participation.
Due to the hostility of Ukrainians to Russian manufacturers at the height of the war between the countries, the Russian Kama Automobile Plant also leaves Ukraine (KamAZ), which sold its sales and maintenance network in our country. Also from the insurance company “Providna” got rid of the Russian company “Rosgosstrakh” by selling all the shares of the Ukrainian “daughter” consortium of Western European investors. True, it is too early to talk about the mass departure of Russian investors.
Exiting quickly means exiting at a lower price.
If Russian companies will actively leave Ukraine, then gradually and without panic.
< p>With another "whip" for a forced operation in Ukraine, there is increasingly a lack of alternative buyers. In particular, not finding interested parties, the investment company Concorde Capital together with the shareholder of the optics chain “Luxoptica” acquired 80% of the “Dobrobut” network of clinics.
Last year, the domestic market was still keeping pace with the global market. The volume of deals with Ukrainian participation, after a three-year decline in 2013, showed a growth of more than two times. These were mainly deals with Ukrainian assets, the sale of which was revived due to the replacement of foreign owners of local assets with Ukrainian ones, as well as due to the consolidation of domestic business. But in 2014, even the desire of foreign investors to leave Ukraine practically did not keep the market afloat. Due to the lack of demand for local assets, the average value of a transaction with Ukrainian participation in three quarters has halved, to $12 million, compared to the same period last year. In general, the M&A market with domestic buyers, sellers or assets lost three quarters of its volume, falling to $895 million in nine months. for the frequent application of “lowering coefficients” to the value of assets, taking into account the crisis situation in the country. EBITDA (the ratio of the company's value to its profit before taxes) was 8-10. He now falls to 2-4.
If until autumn the M&A market with Ukrainian assets was shrinking due to market factors, then in September administrative restrictions joined them. Since September 23, the National Bank has imposed a taboo on the return abroad of funds in foreign currency received by foreign investors as a result of the sale of securities of Ukrainian issuers outside the stock exchanges (except for government bonds), as well as corporate rights of legal entities that are not issued with shares. This was done to stop the outflow of currency from the country caused by the exit of foreign investors. Over the past year, $2.6 billion of previously invested foreign investments left the country, mainly due to the departure of European banking groups – the Austrian Erste Group, the Swedish Swedbank, the French Societe Generale, the Greek Alpha Bank, as well as the Cypriot Fintest Holding Ltd and Kalouma Holdings Ltd. that owned Kreditprombank. Another $6.8 billion, or 90% of direct foreign investments that came to the country over the previous two years, was not included in the Ukrainian economy in the first half of the current year.
As a result of the restrictions in the NBU, the few agreements that were in the process of being concluded stopped. For example, the NBU did not approve the agreement on the sale of the Ukrainian “daughter” by the Greek bank Eurobank Ergasias. Universal Bank of the domestic Delta Group Bank belongs to Mykola Lagun. According to the agreements reached by the banks in August, the amount of the deal, which was planned by the end of 2014, was supposed to amount to € 95 million. In addition, according to the director, such restrictions on the movement of capital in foreign currency made it difficult to enter and exit the Ukrainian market. “Deals that were already in place at the time of the introduction of the restriction were mostly not frozen. But some investors who were considering the possibility of entering or exiting the market preferred to simply refrain from any actions, which generally reduced business activity in the M&A» sector. In the first three weeks of October, only three agreements with Ukrainian participation were announced. If such rates are maintained in the IV quarter, the market of mergers and acquisitions will once again renew the bottom.
Give an incentive
However, the National Bank is preparing to remove restrictions on the sale of Ukrainian assets by foreign investors in the near future. This will be necessary as the regulator intends to stimulate consolidation in the banking sector. In November, he plans to submit a bill to the new parliament that would simplify the procedures for bank mergers and acquisitions in order to facilitate the process of consolidation in the banking sector. Speaking about consolidation, the regulator primarily means not so much the consolidation of healthy banks through mergers and acquisitions, but the purchase of problematic ones by healthy financial institutions.
“It is necessary to simplify the procedures in any case, it will increase the chances of attracting investors.” But regardless of the simplicity of the M&A procedures, it will be difficult to find an investor for banks and other Ukrainian assets in the near future. Three factors can contribute to the resuscitation of the M&A market in Ukraine.
– First, the desire to sell the company due to the impossibility of controlling it due to the change of political elites.
– Second, the readiness to buy Ukrainian assets "on an economic day" and take them into account, taking into account the prospect of further growth due to new political, economic and other trends, as well as the prospect of integration with the EU.
– Thirdly, the ability of stable Ukrainian companies to receive additional financing and use it as budget for concluding merger and acquisition agreements and further organic growth.
But the effect of even these factors will not be felt soon. It will take about a year from the time the war ends and political stability is restored before buyers for Ukrainian assets appear and deals start closing again. This means that the recovery of the Ukrainian M&A market will not happen before the end of 2015.