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KPMG Report: Inbound M&A tops domestic deal making in 2019

KPMG Report: Inbound M&A tops domestic deal making in 2

KPMG in Ukraine has published its M&A Radar: Ukraine and the underlying message from this extensive research is that international investor confidence continues on its upward curve.

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M&A volume grew by 29% to USD2.35 billion in 2019 and for the first time for three years, foreign investment exceeded domestic transaction value. Investment was highly concentrated, with the ten largest transactions in 2019 making up almost three quarters of total disclosed deal value. and just over half of total investment focused on the communications and media, and real estate and construction sectors. Although deal activity was spread more broadly, the real estate and construction, and agriculture sectors accounted for almost 40 per cent of the 80 transactions accounted in 2019. 

Inbound M&A

The largest deal of the year by far, was the USD734 million acquisition of Vodafone Ukraine by Azerbaijan's Bakcell. This was also the 25th largest deal across the Central, Eastern, and Southeastern Europe (CESEE) region.

Other significant inbound deals focused on Ukraine’s key industries:

  •  Innovation and technology - SnapInc purchased AlFactory for USD166 million
  • Pharmaceutical - STADA Arzneimittel AG purchased Biopharma LLC for USD70 million.
  • Agriculture and related infrastructure - SALIC purchased the remaining 66% stake in United Farmers Group for USD56 million, POSCO Daewoo Corporation purchased a 75% stake in Mykolaiv Seaport Grain Terminal and Yuzhnestvidornaya Company LLC for USD39 million from the Orexim Group, and Syngenta acquired Cropio Group, a crop management Ag-Tech business, for USD33 million

Domestic M&A

Domestic M&A totalled USD945 million, down 17 per cent on the previous year  mainly due to a 40 per cent decline in the average disclosed transaction value to USD29 million, rather than a lack of domestic activity.

The biggest domestic deals of 2019 were concentrated in sectors vital to the national economy:

  • Energy – DTEK purchased Kyivoblenergo and Odesaoblenergo for USD250 million from VS Energy.
  • Real Estate and Construction - UFuture purchased Ocean Plaza for USD117 million.
  • Transport and Infrastructure - Kernel agro-holding purchased RTK-Ukraine for USD65 million.
  • Banking – DragonCapital purchased IdeaBank for USD59 million

Transparency Improving

Historically transparency in Ukrainian M&A has been low with transaction values not disclosed for a large number of deals. From under 50 per cent in 2015-2018, transparency nudged up to 59 per cent in 2019 but remains far below the levels of transparency seen in Western Europe.

Positive Market Dynamics

The key influences on international investors’ involvement in Ukrainian M&A reflect the positive dynamics of the country’s economy, which has seen the currency stabilise, reductions in inflation and interest rates, successful issues of corporate and government bonds and on-going structural reform.

Said Peter Latos, Head of Advisory at KPMG Ukraine: “Ukrainian M&A recorded its third consecutive year of double-digit growth in 2019 and this demonstrates the confidence that international investors have in the longer term outlook for the country. The improving economic situation, financial stability provided by the policies of the National Bank of Ukraine, and actions by government in terms of changing laws on concessions and privatisation have all helped investor confidence. And although there is still work to be done to reassure investors, we expect continued double digit growth in 2020, supported by investment in infrastructure to help to sustain the growth in agriculture and food exports from Ukraine and particularly, further investment into related infrastructure, including  seaports. KPMG has a long history in Ukraine, and we are proud to have played our part in supporting SMEs and major private and listed corporations in their development, and, as the government embarks on its programme of ambitious changes, we stand ready to help investors tackle their future challenges.”

* Our outlook was prepared before the dramatic acceleration of coronavirus cases outside of China and confirmation of a global pandemic by the World Health Organization on 11 March 2020. Given the fast-moving nature of the situation, we have not sought to update our outlook based on current events. If you have questions regarding the practicalities of undertaking M&A in Ukraine during the pandemic, please contact us.

Methodology

KPMG’s research into the Ukrainian deal environment is fast becoming recognised as an essential must-have for investors considering both domestic and cross-border M&A with Ukrainian companies is available at: M&A Radar: Ukrainе.

© 2020 KPMG. KPMG refers Limited Liability Company “KPMG Ukraine” and/or Private Joint-Stock company "KPMG Audit" and/or ATTORNEYS ASSOCIATION ''KPMG LAW UKRAINE'', companies incorporated under the Laws of Ukraine, member firms of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


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