UKRAINE HAS STARTED TO DISTRIBUTE BUSINESS FOR CHEAPER
In 2016, the number of transactions in the mergers and acquisitions market in Ukraine increased by 35%. The total amount of public transactions increased by 131%, to 310 million euros. Taking into account non-public transactions, these figures would be twice as large.
According to experts, Ukraine has passed the lowest point of the economic cycle, and many foreign investors are waiting for the beginning of growth in 2017 and are eyeing our assets. They already pick up top management here, lawyers to accompany future deals so that you can quickly start working in Ukraine. The greatest interest potential buyers show to the energy sector and infrastructure facilities (railway, ports, etc.)
Over the past two years, 43% of the total number of deals falls on the financial sector. The same goes for volume. For example, last year a significant part of the increase was provided by the sale of Ukrsotsbank by UniCredit Bank to ABH Holdings for EUR 281 million.
In second place is energy and mining industries. In particular, these sectors accounted for 10% in terms of the number of transactions and 6% of the total value of purchases in 2016.
In addition, agriculture and the sphere of information and communication technologies are active. The Mergermarket table, in which the number of potential "companies for sale" is marked for the last six months, shows that the largest number of M & A objects works in the consumer sector (10). The second place was divided between the financial sector and the chemical industry - seven companies in each.
Investbankers say that potential buyers are eyeing many industries, but not all businessmen are willing to sell cheaply. There is no feeling that Ukrainian owners are ready to significantly reduce the price. Rather, foreigners think they will be able to buy half a country at a low price, and the Ukrainian owners of investment and political risks do not seem so serious. For example, in the banking sector before the 2008 crisis, financial institutions sold at a cost of several capitals (sometimes 6-7) at the bank. Now, at best, we are talking about selling for one capital. The decline in value is primarily due to the purging of the market, as well as to political factors.
In other industries, the indicator is the so-called annual operating profit (EBITDA). Now, according to experts, the sale of business in Ukraine can take place for 4-5 EBITDA. Here a lot depends on the company's prospects. If it works in a market that guarantees a good profit, then the multiplier can be greater. IT companies in the world can trade with a multiplier tens of times higher than their volume, not even operating profit (profit before taxes and interest), but sales.
Unfortunately, there are not so many transactions in mergers or acquisitions in Ukraine, so that it would be easy to call average multiples on deals. Much depends on the industry. In some sectors, such as the agricultural sector, for example, assets have even risen slightly.
In the agricultural sector there are buyers with high liquidity. An example of this is the Kernel agricultural group, which attracted $ 500 million in foreign markets and is now actively considering options for both increasing its own land bank and investing in segments related to agricultural production. Recall that if Kernel completes the purchase of Ukrainian Agricultural Investments and Renaisco B.V., its general land bank may reach 700 thousand hectares. But there are proposals for the sale of agricultural assets, whose owners are not ready to give them at a low price and are ready to wait. With good harvest, they can attract financing for working capital.
The fall in the price of an asset depends on which share of the company's revenue falls on exports. The agro- and IT-companies did not have significant losses in the currency equivalent. Other industries, such as machine building, have lost markets in the Russian Federation and partly the CIS and are reoriented to the Ukrainian consumer. There, the level of the fall in the value of assets is comparable to the devaluation of the hryvnia.
There were cases when agricultural companies negotiated with several buyers and they were forced to make new, higher-priced offers. Especially when such an asset was interested in them within the chosen development strategy.
But in each specific case, everything depends on many factors. For example, potential buyers look at what kind of financial results the company showed before the transaction and what are expected after its completion with the new owner.
Now foreign assets are mainly interested in Ukrainian companies that have managed to accumulate a financial resource or have obtained it from the sale of other businesses. For example, the activity of DCH group Alexander Yaroslavsky, financial and industrial group "TAS" Sergei Tigipko, a number of large retail chains, both food and non-food retail.
That is, companies that have the opportunity to spend money to buy without borrowing. They can make it not a super-attractive offer, but it is beneficial for those companies that are short of working capital.
Opportunities to buy an asset are also available in cases when foreign investment funds complete investment programs within a specified period, irrespective of the prices prevailing in the market at the time of sale. This is, for example, the American Citi Venture Capital International and the Swedish fund East Capital, which withdrew from commercial real estate projects.
In addition to assessing the profitability of the company, other factors may be the conditions for concluding a deal. Ukrainian buyers can offer the seller to repay some of the debts themselves or by transferring to another company. Speaking about foreigners, very often an additional requirement may be the participation of the former owner (as a junior partner or otherwise) in running the business for a specified period, or on an ongoing basis. They need experience working with Ukrainian monitoring bodies and knowledge of local realities.
For financial investors, it is important whether the former owner owns a part of the business (that is, whether a new issue of shares or a shareholder completely withdraws from business). While the main buyers of business in Ukraine are either local companies or enterprises with foreign capital that have been working here for a long time and are well aware of local realities.
However, new investors are not easy to lure into Ukraine. The most interesting for them are again energy (both traditional and renewable), IT sector and the sphere of agro-industrial complex. In addition, market cleansing continues, and small and medium-sized banks will be forced to do something (or be sold or combined) in order to comply with the standards set by the NBU.