Ukrainian M&A market in 2021: restrained optimism amid growth

Ukrainian M&A market in 2021

InVenture estimates that the volume of announced and completed mergers and acquisitions (M&A) in Ukraine, including corporate deals, privatization deals and venture deals for technology companies at the end of 2021 amounted to $ 2.72 billion. Compared to 2020, the total volume of M&A deals across all categories has grown by 130% and the number of deals has also increased by 40% to 112 M&A deals.

Considering the low publicity and transparency of transactions, we assume that the M&A market size may be at least 20% higher and, consequently, is estimated at $3 billion.

In terms of industry, the largest number of M&A deals took place in: the IT sector (31 deals worth $ 789 million), agriculture and agribusiness, mainly agricultural companies which operate in crop production (19 deals worth $ 234 million), the food industry , where took placee the privatization of distilleries (14 transactions worth $ 58 million), financial activities (8 transactions worth $ 109 million), mining (8 transactions worth $ 108 million), transport and storage, mainly grain elevators (8 transactions worth $ 34 million).

M&A transactions in Ukraine in 2021 by industry including the number of transactions and its amount

Source: InVenture database "M&A in Ukraine 2021"

The calculation did not include some unconfirmed transactions, including: the purchase of the Zakaz.ua service by Glovo for $ 60 million, the planned acquisition of Ukrposhta for $ 10 million of AlpariBank, the purchase of Piraeus by the Georgian bank TBC Bank for $ 15 million. In addition, we did not include a large investment round to raise $ 800 million by the fintech startup Revolut (founded by Vladad Yatsenko) from the Japanese conglomerate SoftBank Vision Fund 2 and the American hedge fund Tiger Global Management.

TOP-10 M&A transactions in Ukraine in 2021

Source: InVenture database "M&A in Ukraine 2021"

* Due to the low transparency of the M&A market in Ukraine, InVenture does not guarantee the full reliability of the information provided, and in particular, inaccuracies are allowed regarding individual M&A transactions. The valuation of some transactions is based on expert judgment and comparative valuation techniques and may not include payables, which in turn may result from an overvaluation of the transaction.

Ukrainian M&A market trends in 2021

In 2020 the activity of foreign investors in acquiring assets in Ukraine stagnated, first of all, due to the spread of the COVID-19 epidemic on a global scale, while in 2021 the risks of a military invasion of the territory of Ukraine by Russia come to the fore.

Alexey Oleynikov, the managing partner of InVenture, gives a direct speech of one of the major investors considering investments in the Ukrainian economy:

«We just had a call here and for now we are suspending any further investment in Ukraine from our side.  It is becoming increasingly apparent and likely to us that Russia will have to take some actions on Ukrainian territory having been backed in to a corner now and the risks therefore of putting money in to Ukraine until we see what that Russian action is are simply too high for us.

 We are moving a couple of our early stage businesses from Kyiv to Lisbon, we may be selling some assets shortly, I'll let you know, but for the time being we are suspending any further investment in Ukraine so it doesn't really make sense to take up your clients' time.

I don't know that Putin has any other option than to invade something at this stage, it is just a case of what and how far.  Hopefully I'm wrong and it is all for show but him moving 200,000 troops to the border and then apparently backing down to threats of sanctions would be uncharacteristic for Putin».

Many Western investors still consider Ukraine as a large untapped economic potential, but it is necessary to work hard to change investor sentiment and attract investment in the current realities. In particular, much still needs to be done in the areas of governance, corporate governance, transparency of justice and predictability of the business environment.

Investors believe that Ukraine is the most corrupt country among the EU countries, where "significant corruption" flourishes and the government is associated with private interests.

Conflicts between large foreign investors and Ukraine played a huge role in the development of the M&A market in Ukraine. Among them, it is worth highlighting the claim through the court in The Hague for $ 4.5 billion from the Chinese investor Beijing Skyrizon against Ukraine within the framework of the nationalization of the Motor Sich aircraft manufacturer. In 2021, InVenture held a series of negotiations with Chinese investors, which made it clear that this conflict had a great resonance within the Chinese business community and forced many Chinese companies to postpone their plans to invest in the Ukrainian economy.

In addition, a number of precedents appeared during 2021 related to non-observance of the rights of Western investors in Ukraine, including raiding.

Despite the fact that a significant part of the debt to investors - producers of electricity from renewable sources was repaid in the second half of 2021 using funds, attracted wiht Eurobonds in the amount of $ 825 million, discrimination in the payment of these debts remains negative signals for investors in the alternative energy sector.

On the positive side, investors assessed the first step on the path of land reform and expect further liberalization of the land market in terms of access of foreign capital to conduct transactions for the sale and purchase of agricultural land.

On the positive side, investors assessed the first step on the path of land reform and expect further liberalization of the land market in terms of access of foreign capital to conduct transactions for the sale and purchase of agricultural land.

Forecasts for the development of Ukrainian M&A market in 2022

Taking into account all the risks that are typical for the Ukrainian economy as of the end of 2021, together with analysts' forecasts and existing opportunities for investors, we adhere to “cautious optimism” regarding the growth of the M&A market in Ukraine in 2022.

Subject to de-escalation of military tension from Russia, a gradual return of foreign strategic investors to the Ukrainian market might be expected.

The trend of redistribution and consolidation of assets by local industrial and financial groups in traditional sectors of the economy will continue. In 2021, InVenture received a number of mandates for the acquisition of industrial assets from companies that have grown organically for many years and are now ready to invest in growth by acquisitions of new assets.

In the agriculture sector, M&A deals are not expected to grow rapidly in the first half of 2022, as current prices for agricultural raw materials are kept at a high level and, accordingly, cause high expectations by owners for the value of agricultural companies. The market has a limited number of offers for the sale of agricultural companies that worth $ 5-20 million.

Technology companies will be in demand from, primarily, foreign investors, as a result of the development of the venture capital industry in Ukraine and universal digitalization against the backdrop of the impact of the COVID-19 pandemic. In Ukraine, there is a trend to open new funds from venture funds (for example, SID Venture Partners), up to Private Equity funds interested in green technologies (Green Sustainable Fund One).

According to the results of a study by the law firm Avellum, 70% of respondents identified the situation in Ukraine as acceptable for buying or selling a business. Almost a third of companies (32%) believe that the current situation in Ukraine is favorable for such agreements. Only 11% of the surveyed companies note that now Ukraine has unfavorable conditions for concluding transactions for the purchase or sale of a business. At the same time, 50% of potential buyers are interested in buying a business in Ukraine precisely in connection with the pandemic. Their share has increased compared to last year. This indicates that a significant proportion of companies are opportunistic.