How can this affect the international business structuring, relevant operations and movement of Ukrainian capital abroad?
Domestic deal-making continues to be the bedrock of Ukrainian M&A activity, with a total spend of USD1.1 billion and 50 transactions. The largest deal of the year saw a consortium of domestic investors, including Metinvest, acquire the mining and coal enrichment facilities of Donetsksteel for USD714 million.
The review also highlights the growing confidence of international investors in Ukraine, based on the nation’s sound economic recovery and progress with structural reforms, which are a key requirement of the IMF and EU loan packages. In total, inbound deal activity was up 47 per cent with 25 deals announced, and a total of USD508 million invested – importantly, nearly half of all inward investors in 2018 were new to the Ukrainian market. Key inbound deals included the sale of Mriya Agroholding to the Saudi Agriculture and Livestock Investment Company (SALIC) for USD242 million, the second largest deal of 2018, and the Julius Baer Group’s USD73 million purchase of a stake in Kernel Holdings.
The metals and mining sector attracted the largest share of investment, thanks to the Donetsksteel acquisition and the USD106 million purchase of Evraz DMZ by Development Construction Holding. Ukraine’s ability to produce quality steel products with a low cost base, looks set to continue to drive activity in this sector in the coming year.
Ukraine’s farmers once again set a new production record in 2018, with 92 million tonnes of grains and oilseeds harvested, with some USD19 billion of food products exported. Consequently, international investors are taking an even closer look at the agriculture sector. Total activity increased by 62 percent with 21 deals, while the value of deal-making was up by 27 per cent to USD576 million. Alongside the deals by SALIC and Julius Beare, the Sumitomo Corporation acquired a 51 per cent stakes in Spektr-Agro and Spektr-Agro-technika for USD45 million, while Agrogroup Pan Kurchak acquired Agrofirma Tripole and Radivolov Agro for and the USD28 million.
The report notes no less than 23 deals in Real Estate and Construction, making it the most active sector for Ukrainian M&A in 2018, accounting for almost one third of all deal-making, on the back of improving yields and occupancy rates. The USD124 million of spend was the highest since 2013 and no less than USD51 million of that figure was attributable to Ukraine-based investment fund, Dragon Capital.
2018 did not see the promised privatisation of large State Owned Enterprises (SOEs) and although the government has once again committed to the process, the report is doubtful that there will be much activity in 2019 given both presidential and parliamentary elections. Nevertheless more than 400 smaller SOE’s were sold through the ProZorro.sale online auction platform during 2018, adding USD21 million to government coffers, with many more earmarked for sale in 2019.
Looking forward, the report notes the underlying soundness of Ukraine’s economy, which has seen rating agency Moody’s increase the country’s sovereign debt rating three times in the last three years, and its improved positions on the influential Doing Business ranking and the Global Competitiveness Index. Ongoing reform of the state sector was endorsed in 2018 by the IMF which agreed a USD3.9 billion Stand-By Arrangement and the report expects similarly responsible economic progress in the year ahead. Inflation looks likely to approach the NBU’s forecast of 6.3 percent and the report notes an expected growth rate of around 3 percent.
Said Peter Latos, Head of Advisory at KPMG Ukraine: “Although we believe that investor confidence in Ukraine will remain high, some softening in deal-activity is expected until the likely outcome of the forthcoming elections is clear. However, provided government policy remains consistent and fiscally responsible, we believe a strong pipeline will exist for Q4 of 2019 and beyond. On this basis, our outlook is for a modest increase in the value and volume of Ukrainian M&A for the full-year, with further new international investors entering the market.”
The Ukrainian M&A Review is based on the KPMG’s M&A database which includes transactions over USD 5 million in value, as well as transactions with undisclosed deal values where the target’s turnover exceeds USD10 million, where either the target (inbound) or acquirer (outbound) or both (domestic) are Ukrainian. All data is based on transactions completed between 1st January and 31st December 2018, or announced during this period but pending at 31st December 2018.
KPMG’s Ukraine M&A Review 2018 is available here.
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