Main Results of 2014 for the Ukrainian Market of Mergers and Acquisitions

The total amount of M&A deals in Ukraine constituted not more than USD 2 bln according to preliminary results, which is 3 times less than in 2013.

The biggest M&A deal in the Ukrainian market was the sale of network of 240 gas stations and 6 oil plants on the balance of affiliate company LUKOIL-Ukraine by the Russian company LUKOIL to the Austrian AMIC Energy Management for USD 300 mln.

The largest sector in terms of volume and quantity of M&A transactions in 2014 was the banking sector.

Analysis of the Ukrainian M&A market

Although the global M&A transactions volume in 2014 was at its record high and, according to Financial Times, constituted USD 3.34 tn., Ukraine’s share in this volume was miniscule.

By our calculations, the total volume of mergers and acquisitions (M&A) transactions in 2014 with Ukraine as a seller, purchaser or the country of origin of assets, was not more than USD 2 bln, which is 3 times less than in 2013.

The main drivers of this decline in the Ukraine’s M&A market in 2014 were political instability, annexation of Crimea by the Russian Federation and active military activities at the East of Ukraine. As a result, Ukrainian market of mergers and acquisitions experienced an unprecedented crash. Starting from the first quarter of 2014 most investors took a pause until the situation in the country was stabilized. Therefore, the majority of transactions closed in 2014 were the ones negotiations on which started the previous year and concluded in 2014, or the ones that were forced, mainly those where the sellers where Russian owners or other foreign companies.

One of the key features of the Ukrainian market of mergers and acquisitions in 2014, as well as in 2013, was the fact that Ukraine did not act as a purchaser of foreign assets in the majority of cases. The biggest transaction in which a Ukrainian company bought foreign assets was the purchase of insolvent JSC Liepajas metalurgs by Ukrainian KBB Group for USD 138 mln.

Industry Overview

Banking sector

The largest sector of Ukraine’s economy in terms of the volume of M&A transactions in 2014 was the banking sector, which contributed USD 800 mln. There have been a number of big M&A transactions: the sale of 99.77% of shares by PJSC Bank of Cyprus to a Ukrainian affiliate of Alpha-Bank and the sale of PrivatBank’s affiliate banks in Georgia and Russia.

The transaction between Alpha-Bank (Ukraine) and Bank of Cyprus Group about purchase of 99.77% of shares of PJSC Bank of Cyprus was closed in April 2014 and constituted EUR 202.5 mln (USD 276 mln).

PrivatBank sold its Russian affiliate, MosComPrivatBank, for RUB 6 bln (USD 173 mln) to the Russian Binbank, and a Georgian affiliate was sold to the largest regional financial institution Bank of Georgia (BOG) for GEL 92 mln (USD 51 mln).

Delta Bank and its major shareholder Nikoai Lagun concluded only one transaction about purchase of Marfin Bank estimated at USD 20 mln. Whereas in 2013 Nikolai Lagun bought four financial institutions: Kreditprombank, banks Omega and Astra and Ukrainian Swedbank. It should be noted that, due to financial difficulties, Delta Bank did not manage to close a transaction about purchase of Universal Bank for EUR 95 mln.

This was also a year when a lot of Ukrainian small and pseudo banks went bankrupt. To be more precise, in 2014 the National Bank of Ukraine started a liquidation of 17 banks and currently temporary administration of 17 more banks is established.

Oil and gas sector

There have been a number of transactions about change of ownership of gas station networks in the oil and gas sector, caused primarily by political events in the country.

Russian company LUKOIL sold a network of 240 gas stations and six oil plants on the balance of its affiliate LUKOIL Ukraine to Austrian AMIC Energy Management. The amount of the transaction was USD 300 mln. It has been stipulated that this was a technical and simulated transaction which will enable the Russian company LUKOIL to formally change the owner and conduct rebranding thus avoiding boycotts of its gas stations.

Invest Fund Freeze Oil Fund (the Netherlands) bought a network of gas stations in Ukraine from BRSM Nafta company. The purchase included 135 gas stations, 87 minimarkets, three oil storage plants and a park of 41gasoline tankers. BRSM Nafta was founded in 1990-ies, but the growth of its gas stations network reached its peak in 2010-2013, when Eduard Stavytskyi, supposedly the owner of the network, was a minister of energy and coal industry. He is currently fleeing the law abroad.

Therefore, these were forced transactions, concluded to aid the survival of business under new conditions.

Agriculture and food products

The most significant transactions in the Ukrainian M&A market in the agricultural sector were the sale of 5% of Ukrlandfarming holding to Cargill and withdrawal of Gruppo Campari from Odessa Plant of Sparkling Wines.

The transaction between transnational company Cargill and Ukrlandfarming about purchase of 5% of the shares of the holding worth USD 200 mln technically is not an M&A transaction, because it did not involve a change of owners or transmission of corporate control. However, this transaction shows that Western companies have not lost their faith entirely, at least in Ukrainian agriculture. Therefore, 100% of the block of shares of Ukrlandfarming, property of a Ukrainian businessman Oleh Bakhmatiuk , was estimated at USD 4 bln.

Gruppo Campary company (Italy) sold Odessa Plant of Sparkling Wines to Vinfort. Vinfort imports alcoholic beverages to Ukraine under the trademarks TM teacher’s, Vana Tallinn, Jim Beam, Ardmore etc.

Retail industry

There have been two big transactions in the retail sector, both involving local investors. In 2014 the last Russian retailer, trading network Perekrestok (13 outlets) withdrew from the country. It was sold to a network of supermarkets from Dnipropetrovsk Varus. Also a German group Praktiker sold its Ukrainian shops to the audit company Kreston Guarantee Group Ukraine for the benefit of a private investor.

Forecast for the future

This year saw the greatest meltdown of the Ukrainian M&A market. Therefore, there is hope that in the second half of 2015 we will see a revival of the M&A market, provided that the war is ended and political stability returns. Inability to control a company due to a loss of political influence in Ukraine and the readiness of Western investors to buy Ukrainian assets “at the economic lowest” with the prospect of further growth due to new political and economic stimuli, as well as the prospect of integration with EU, are all going to help the recovery of the M&A market in Ukraine.

In 2015 the volume of M&A transactions should be bigger than that of 2014, and the buyers will once again be local businessmen. At the same time, we are not likely to see Russian investors among the buyers of Ukrainian assets, and there is hope that Western companies will show more interest in the lucrative Ukrainian market.

In addition, it is possible that Petro Poroshenko will find a purchaser for his confectionary Roshen in 2015, and this transaction will probably be the biggest one, because, according to the most conservative estimates, Roshen is worth about USD 1 bln.