The economic impact of the COVID-19 pandemic brought to an end three consecutive years of Ukrainian M&A growth. This is the conclusion of research undertaken by KPMG in their latest edition of the M&A Radar 2020: Ukraine. The value of M&A transactions dropped by 62 percent on the previous year, down to USD0.9 billion, while the volume of activity fell to levels last seen in 2017: the 69 transactions announced in 2020 reflected a 15 percent decline on the previous year.

Economic turbulence affected the confidence of investors in Ukrainian M&A considerably more so than in other regions. For example, in Central and Eastern Europe the value of M&A transactions fell by only 16 percent and by just seven percent globally. That was partly due to a lower level of deal transparency: information was disclosed about just 48 percent of transactions, compared with 59 percent of deals in 2019. At the same time, the average value of transactions decreased to USD28 million. The decline in the average value of transactions can be explained by a combination of factors, including: reluctance on the part of some investors to invest during a pandemic, the pandemic’s effect on some investors ability to raise financing during this period, and the desire of sellers whose financial condition was not affected to postpone the conclusion of agreements in anticipation of increases in the value of their business.

In the first six months of 2020, 27 deals worth USD456 million were announced. Compared to H1 2019, there was a 40 percent decrease in the volume of transactions and a 47 percent decline in the value of transactions: the lowest half-year figure since the first six months of 2015.

Among the most notable deals was Belgian industrial minerals group Sibelco’s purchase of two Ukrainian clay mining companies in May 2020; namely, LLC Euromineral and PJSC Kurdyumovsky Acid Resistant Products Plant. The Emerging Europe Growth Fund, owned by Horizon Capital, also acquired a sizable minority stake in the MAKEUP Group which is a leading fast-growing online seller in the cosmetics market.

M&A deals in Ukraine began to gain momentum in the summer of 2020 and demonstrated some positive dynamics in Q4, which saw 26 deals announced worth a combined USD187 million. The last quarter of the year was the most active in terms of deal-making in Ukraine since 2014.

Although nearly two thirds of all deals were announced in the second half of 2020, the combined value of these transactions was broadly on par with the first half, at USD469 million. One reason for this was the sharp decline in transparency of deals, with transaction values disclosed for only 40 percent of deals during H2 compared to amost 60 percent in H1. The largest deals announced in H2 were the USD70 million acquisition of Kaskad-Agro by Agartha Fund and the USD70 million acquisition of BILLA Ukraine by a Lithuania-based operator of supermarkets UAB Consul Trade House.   

The overall structure of Ukrainian M&A remained relatively stable, with domestic deals accounting for 62 percent (43 deals) of all transactions announced in 2020. The largest domestic deal announced last year was Dragon Capital’s USD110 million acquisition of LLC Eurozhitlogroup (owner of “101 Tower” Business Centre).

Despite travel restrictions caused by the pandemic, inbound deals by foreign investors still accounted for more than a third of all transactions announced in 2020 (25 deals). Foreign investors preferred sectors such as Innovation and Technology (nine deals), Agriculture (six), and Transport and Infrastructure (four), which together represented more than three-quarters of all inbound M&A last year.

DP World’s USD130 million acquisition of a 51 percent stake in the TIS-Container Terminal at the Yuzhny Port, was the largest inbound deal in 2020. The deal also clearly demonstrates the confidence of foreign investors like DP World in the long-term economic fundamentals of Ukraine.

Despite certain headwinds there are reasons to be cautiously optimistic about the outlook for Ukrainian M&A and wider investment in the country in 2021. For example, Dragon Capital plan to invest some USD200 million this year, which would signal a return to pre-pandemic levels of investment, while in February 2021, the United Arab Emirates signed investment memoranda with Ukraine worth USD3 billion. Such a statements of intent will not have gone unnoticed by others eying Ukraine's investment potential.

According to Peter Latos, Head of Consulting and Deal Advisory, KPMG in Ukraine, the confidence of investors in Ukraine will to some extent depend on the efficiency of the domestic vaccination roll-out, as well as on how effectively the country can overcome certain obstacles in the months to come. "Among the key issues to be addressed are the ongoing dispute with the Constitutional Court of Ukraine, the Ukrainian government’s repayment of debts totalling about USD1 billion to alternative energy producers, and negotiations with the IMF to secure the next tranche of funding under the Stand-By Arrangement", - Latos said.

Reference:

The M&A Radar report was prepared based on KPMG-Ukraine’s database of M&A deals  which covers transactions where the target of acquisition (a deal in Ukraine with foreign investors), or the buyer (a deal abroad with Ukrainian investors), or both (domestic deal) involve Ukrainian companies or investors. All data are based on transactions that took place between 1 January and 31 December 2020 or were announced during that period but suspended as of 31 December 2020.