Challenging times for the country and the M&A market - Emerging Europe: M&A Report 2014/15

2014 proved to be a challenging year for Ukraine. Download report here

What started in November 2013 as a peaceful demonstration in Kyiv against refusal by the then current Ukrainian President, Viktor Yanukovych, to sign the Association Agreement with the EU, in favour of closer cooperation with Russia, ended in the annexation of Crimea by Russia, ongoing war in Eastern Ukraine and devaluation of the Ukrainian Hryvnia by nearly 50%. Such unfortunate events certainly did not contribute to the stability or growth of the M&A market in Ukraine and resulted in a significant drop in the number and value of M&A deals as compared to previous years. Many deals were put on hold by potential investors in the hope that the crisis would be resolved in the near future.

Our data shows 60% fewer M&A deals in 2014, and a dramatic 81% drop in the total deal value as compared to 2013. The M&A market was dominated by domestic investors, with a number of high profile deals carried out by and amongst Ukraine’s richest businessmen.

The sectors which attracted the highest number and value of deals were finance & insurance, agriculture, wholesale & retail trade and manufacturing. Overall, the finance & insurance sector had the biggest share of total deal value and deal number for the year, accounting to 36% and 23% of the total, respectively. IT and oil & gas also remained strategically important sectors in Ukraine in 2014.

The most notable M&A deals in 2014 included Russia’s Alfa Group’s acquisition of 99.8% of PJSC Bank of Cyprus for a reported €225 million and Austrian AMIC Energy Management GmbH’s €223 million purchase of Lukoil-Ukraine.

Given all the turmoil, at best we see the 2015 M&A market in Ukraine as flat when compared to 2014, with perhaps a small number of high profile M&A deals being carried out by and amongst Ukraine’s elite, alongside further strategic exits from the country. We predict that the most attractive sectors in 2015 will be banking (there are still too many banks, with over 175 operating on the market), agriculture, IT and energy. 2015 may also become a year of privatisations as the Government seeks to follow through on its commitments.

But despite all the turmoil, 2015 could potentially be a year where the country starts to see some light at the end of the tunnel. President Petro Poroshenko is now the President and in June 2014 he signed the long-awaited Association Agreement with the EU. Parliamentary elections followed in October 2014 and more than three-quarters of voters supported political parties which favour closer relations with the West and Ukraine’s course towards Europe. Formation in December 2014 of a new Western-oriented Government completed a series of key political changes in Ukraine in 2014.

Ukraine is currently in need of radical changes and the new Government has pledged to pass an extensive program of reforms in the near future, including those required by the IMF and the terms of the EU-Ukraine Association Agreement. Implementation of these reforms is expected to strengthen the business environment in Ukraine and attract investment. So whilst our prediction is that 2015 will be a relatively uneventful year from an M&A perspective, continued efforts by the Government to eradicate corruption and improve the investment climate could well plant the seeds so as to make Ukraine a more attractive investment destination for both domestic and foreign investors in 2016 and beyond.

Graham Conlon

Partner Corporate Department,

CMS Cameron McKenna PE Sector Co-Leader,

CEE CMS Ukraine

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Johannes Trenkwalder

Partner Corporate Department,

CMS Reich-Rohrwig Hainz CMS Ukraine

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