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From invasion shock to resilient recovery: Ukraine’s M&A market

Bankers are confident that a UAH 40 per dollar exchange rate is unlikely in the coming weeks
Bankers are confident that a UAH 40 per dollar exchange rate is unlikely in the coming weeks

While Russia’s full-scale invasion caused a major decline in M&A [mergers & acquisitions] activity in 2022, Ukraine’s economy has proven remarkably tenacious.

If 2022 was a year when businesses taking a reactive stance to overcome the devastation of war, 2023 has seen companies proactively improving their economic resilience. Some industries, such as the Ukrainian IT sector, were better placed to adapt to these changes due to having a developer base in Ukraine and headquarters in Europe and the United States. Other sectors, such as Agriculture, have made prudent investments in storage and transportation infrastructure, making lasting improvements whose effect will be felt for years to come.

"Despite setbacks in 2022 and 2023, business, and the Ukrainian state and society as a whole, have pulled together. This collective effort affirms Ukraine’s commitment to business continuity and the determination of its citizens to overcome this difficult period. Ukraine has withstood multiple crises caused by unjustified Russian aggression, demonstrating the will and enthusiasm to improve and strengthen production, ensure timely exports, and create new investment opportunities. In searching for solutions in the face of overwhelming odds, Ukraine has laid and continues to lay the foundation for improving investor confidence in 2024," says Svitlana Shcherbatyuk, Director, Head of Transaction services, Deal advisory, KPMG in Ukraine

Following territorial losses, population outflows, and a 30% drop in GDP in 2022, 2023 saw Ukraine’s business environment begin to normalise, even rallying in some cases. With the announcement of 47 deals in 2023, the Ukrainian M&A market was on the rebound with the volume of activity increasing by almost 70% compared to 2022. Ukrainian M&A deals doubled in overall value between 2022 and 2023, exceeding levels last seen in 2020. With only 60% of deals disclosing financial details, the true value for 2023 would be even higher.

Average M&A transaction values also increased from a war-induced slump. In 2022, the average M&A deal value was $26 million, the lowest seen since the Revolution of Dignity in 2014. By the end of 2023, this indicator had increased to a more robust $44.6 million (principally as the result of a $500-million deal involving NJJ Capital’s acquisition of telecommunications company Lifecell).

There were relatively few deals worth more than $100 million in 2023, with only three such deals announced. However, investor confidence in Ukraine is growing as more risk mitigation options are made available through the Government of Ukraine, international partners like the US, EU and the UK, and international finance institutions such as the World Bank’s Multilateral Investment Guarantee Agency (MIGA). This confidence boost means that Ukraine is regaining its attractiveness as a location for larger-scale deals on the scale of, for example, the aforementioned Lifecell deal.

“In the aftermath of the Russian full-scale invasion, the M&A landscape in Ukraine has had to undergo substantial transformations that can make deal-making more challenging for both sellers and buyers. However, Ukrainian dealmakers have proven their adaptability and resilience in navigating these complexities. Despite heightened challenges, the outlook remains cautiously optimistic as Ukraine looks ahead to potential opportunities in 2024,” says Volodymyr Maksymenko, Associate Director, Transaction Services, KPMG in Ukraine

M&A deals in Ukraine

Key sectors

After Russia’s full-scale invasion in 2022, M&A activity in Ukraine has been largely concentrated in four key sectors: innovation and technology, agriculture, real estate and construction, and transport and infrastructure. Together, these sectors accounted for nearly 57% of deal value and just under 64% of total deal volume in 2023.

These industries both play to traditional strengths in exports and services and demonstrate that Ukraine is already on the path to reconstruction, investing in infrastructural resilience and hardening logistics chains to overcome wartime and post-war challenges.

M&A deals on the Ukrainian market with the participation of Ukrainian investors

The share of deals in 2023 involving Ukrainian investors increased compared to the previous year, accounting for 36% of the total value and 51% of the total volume of all M&A deals concluded in Ukraine. This recovery can be partially attributed to additional measures implemented by the National Bank of Ukraine to prevent capital outflows, with Ukrainian investors looking to the domestic market as an alternative.

Four of the top-ten most significant deals announced in 2023 involved Ukrainian investors making domestic purchases, focussing their attention on real estate and construction (buoyed by a resurgence in consumer footfall and business interest), and agriculture and agriculture-related infrastructure (attributable to prudent planning an outstanding harvests).

Acquisition of foreign assets by Ukrainian investors

Outbound deals from Ukraine have undergone a resurgence, reminiscent of renewed activity in the after the 2013–2014 Revolution of Dignity. There were five outbound deals in 2022, followed by six in 2023: a notable increase from one outbound deal per year observed between 2020–2021.

The most substantial outbound deal involved Epicentr K acquiring an undisclosed stake in Polish sports stores operator Intersport Polska S.A for $11 million. Meanwhile, DTEK Renewables BV, the operating company managing DTEK Group’s renewable energy assets, acquired a 49.38 MW installed capacity photovoltaic power plant from Finas Invest, a Romania-based alternative power developer.

These deals are evidence of an increasing appetite on the part of Ukrainian investors to engage in asset diversification and innovative investments to bolster their Ukrainian holdings.

Acquisition of Ukrainian assets by foreign investors

Investors from Europe ($571.5 million total deal value spread across eight deals) and North America ($214.3 million across eight transactions) accounted for 100% of all deals involving foreign investors with a declared value and 94% of the total volume of deals in 2023.

Foreign investors tend to pursue deals in Ukraine's innovation and technology sector, and 2023 was no exception with 65% of all inbound deals (11 transactions) involving IT. Ukraine’s IT industry was the only sector to continue to grow as a share of GDP in 2022, stemming from IT companies’ experience of operating in international markets and therefore benefitting from a greater level of foreign attention and networking opportunities.

IT industry remains a powerful pillar of the Ukrainian M&A market

Despite issues such as the need to reserve key employees and reduced opportunities to travel to meet with potential investors, the Ukrainian IT sector continues to serve as a beacon of economic strength and confidence in the country’s capacity to deal with geopolitical turmoil. Horizon Capital LLP frequently participates in landmark IT deals, recently leading a group of investors in acquiring a significant stake in Ukrainian online language learning platform Preply Inc. Mythical Games also made forward-looking moves in 2023 by acquiring DMarket, a Ukrainian blockchain game market.

Pre- and post-invasion, Ukraine’s IT sector has increasingly been seen as a lodestar for the health of Ukrainian M&A deal interest both domestically and internationally. Many deals that began negotiations as early as 2021 were completed in 2022. This meant that even in what could be considered one of Ukraine’s darkest hours, 2022 saw 19 deals with a total value of $440 million in the IT industry alone, accounting for 68% of the volume of all deals and 89% of the deal value of the Ukrainian M&A market that year.

The completion of these landmark 2021 deals partially explains the 40% decrease in deal value and 26% decrease in deal volume seen by Ukraine’s IT industry in 2023. However, this decline was anticipated as a natural consequence of planned 2021 deal completion and H2 2024 is expected to see a resurgence in growth trends.

Furthermore, 2023 saw about 79 transactions in the Ukrainian IT sector with a deal price below $5 million. Despite their smaller scale, deals where the value was disclosed (fewer than half) collectively amounted to $43 million: a development which underscores the dynamic nature of the Ukrainian IT market and the inherent resilience of this sector.

Ukrainian M&A Prospects in 2024

Ukraine has achieved considerable progress in recovering from post-invasion repercussions, exhibiting positive signs in terms of economic growth and promising avenues for development despite Russia’s ongoing aggression. With the potential for more financial assistance provided by international partners, a stabilised energy sector, and increasingly effective solutions to the issue of border blockades both at sea and with other EU countries, there is clear potential for a modest upswing in the overall value and volume of M&A transactions on the Ukrainian M&A market in 2024.

Several investment projects are already underway, such as the establishment of the Ukraine Development Fund with support from leading US investment companies BlackRock and JPMorgan. USAID and Ukrainian Railways have also jointly signed a memorandum to connect Lviv with the Trans-European transport network, a ground-breaking development whose impact will resonate long after the war ends by increasing the speed of land-based exports by rail and literally build stronger links between Ukraine and its EU neighbours. Meanwhile, Canadian company Black Iron, involved in iron ore extraction from the Shimanovsky deposit in Kryvyi Rih, urges the Ukrainian government to sign an investment agreement that would see a further $1.1 billion of foreign investment in a mining and processing plant.

You can download the full version of the report on the KPMG in Ukraine website via the link: M&A Radar 2023: Ukraine | Market analysis - KPMG Ukraine.

KPMG is an international network of independent firms providing auditing, tax, and consulting services.

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