12 April 2012
Oksana Ilchenko, M&A partner at the Ukraine offices of Egorov Puginsky Afanasiev & Partners, comments to Ukrainian newspaper KyivPost

Ilchenko: Expect more organic M&A growth in future withCyprus, Russians as biggest buyers

In this Kyiv Post interview, Oksana Ilchenko, M&A partner at the Ukraine offices of Egorov Puginsky Afanasiev & Partners, said she does not feel a recovery to pre-crisis boom levels, but expects future growth to be more organic and steady.

Kyiv Post: Do you see the Ukrainian M&A market recovering to pre-crisis levels? If so, when and what sectors will be most attractive?

Oksana Ilchenko: The pre-crisis M&A market growth was largely based on speculative factors both in Ukraine and abroad. As the regulators as well as the businesses learnt and, in some instances, still continue learning that lesson, I believe that further M&A growth will be more organic and thus significantly steadier.

So, don't expect a return to the pre-crisis boom levels of M&A activity in the foreseeable future.

Those sectors where the country traditionally has a comparative advantage: agribusiness (especially upstream), IT, services. Also, green energy and healthcare are the sectors of significant although yet largely untested potential.

KP: If European banks were big buyers of Ukrainian assets before the crisis, who are the main buyers on the market today, who will be buying in coming years and what countries are they from?

OI: Cyprus :) and Russian companies will be the principal investors for Ukraine for the next 2-3 years.

KP: For the selling side, is now an optimal time for a Ukrainian business owner to sell? Or would it be best to wait a year or two?

OI: If the aim of the owner is to cash out, probably, it would be reasonable to wait a year or two or sell his stake gradually.

KP: For the buying side, is now an optimal time to for a foreign investor to buy an asset in Ukraine, or would it be best to wait a year or two?

OI: The right moment is when one finds the right target and the latter is for sale. If you wait for the right assets value instead, consider the economic impact of deferring the synergies that can be achieved now.

KP: Could you identify the top five strategies and hands on changes domestic business owners should start adopting today to ensure they can maximize the sale price of their assets to an investor in the future?

OI: If I had to give a uniform advice applicable to the majority of cases, it would be as follows – start thinking about your future deal now and do the homework even if the business is in good financial shape: keep your assets up to date and invest in technology and human resources; cure the historic business and legal flaws and gradually change the unusual patterns; identify your potential buyers and their likely requirements and develop a sound strategy to ensure they are met; keep your group structure flexible enough to accommodate different structuring requirements; ensure that your management will be with you through the sale process.

KP: What are the top five risks investors face when buying assets in Ukraine and what strategies and measures can they adopt to ensure that they get a fair price for assets bought in Ukraine while minimizing risks of potential problems related to the assets?
OI:The short list of the main legal risks affecting the assets is as follows: weak protection of the ownership rights; selective and arbitrary actions by the governmental authorities; broad and untested discretion of the Ukrainian courts; weak competition law enforcement; unpredictable tax regime.

Although these are the infamous “country risk”, the key measure to assess their potential impact on the target asset would be thorough diligence of the latter.

When it comes to minimizing the impact of such risks, the advisable strategies are: price adjustment mechanisms in the sale and purchase agreements, longer escrow periods, escrow amounts placed outside of the country, system of checks and balances at the level of the holding companies in case of the joint ventures, with proper enforcement mechanisms.

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