• Mykola Stetsenko

    Managing Partner, AVELLUM


Address: 38 Volodymyrska Street,
Kyiv, 01030, Ukraine
Tel./Fax: +380 44 591 3355
E-mail: info@avellum.com
Web-site: www.avellum.com

AVELLUM is a leading Ukrainian full service law firm with a special focus on finance, M&A, and dispute resolution.

The firm covers capital markets, competition, corporate/M&A, dispute resolution, employment, banking and finance, energy and infrastructure, real estate, restructuring and insolvency, and tax.

AVELLUM’s goal is to be the firm of choice for its clients with respect to their most significant business transactions. Its team is responsible, commercially minded, solution orientated and cost effective. The firm brings the most advanced Western legal techniques and practice, which, coupled with first-hand knowledge, broad industry experience, and an unparalleled level of service, will help the clients achieve the best results in their business endeavours. Avellum’s lawyers work seamlessly in integrated teams with premier US, UK, and European law firms in the course of multijurisdictional transactions. The firm offers its clients a highly individual focus on their matters, and is relentless when it comes to observing deadlines.

AVELLUM’s clients include international and domestic companies, government authorities, financial institutions, investment funds and investment banks seeking specialised legal advice and transactional skills from legal experts in the above practice areas. AVELLUM’s clients include AGCO, Allergan Inc, Altran, Baring Private Equity Asia, Onex Corporation, Boehringer Ingelheim GmbH, Canada Pension Plan Investment Board, CNBM International Corporation, Deutsche Bank, Deutsche Beteiligungs AG, EBRD, Farmak, Ferrexpo, ING Bank, Kernel, MHP, the Ministry of Finance of Ukraine, Novartis, Raiffeisen Bank International AG, UDP, Unicredit Group, and others.

The firm’s employees received their education from top Ukrainian and Western universities. The team consists of 31 highly-qualified attorneys, including three partners, Mykola Stetsenko, Glib Bondar, and Dmytro Marchukov, who are actively involved in every transaction.

AVELLUM is recognized as one of the leading law firms in Ukraine by various international legal directories and Ukrainian legal publications such as Chambers & Partners, IFLR1000, Legal500, International Tax Review, Ukrainian Law Firms, and others.

Ukrainian M&A Market Review: A Look Ahead

Current Market Environment

The year 2016 was marked by relatively low M&A activity in Ukraine. Although transactions were carried out in almost every industry, their total number turned out to be quite moderate. In our view it is necessary to distinguish transactions relating to the Ukrainian market only and those transactions that were effected on a global scale, but which contained a significant Ukrainian element.

If we speak of Ukrainian transactions only, a number of transactions in the financial sector are worth mentioning, particularly the acquisition of Ukrsotsbank by Alfa Group and the sale of Universal Bank. The latter was acquired by the TAS Group owned by Sergiy Tigipko, who also acquired Aegon life insurance company from its foreign shareholders. In line with its exit strategy, UniCredit sold its leasing subsidiary in Ukraine to Alfa Group in early 2017.

We also witnessed a certain number of transactions in the agricultural sector (the sale of Creative Group, for instance), the IT segment (Soros investment in Ciklum), and the investment by Horizon Capital, a private equity fund, in Rozetka. Market rumors hint that several private equity firms are in the process of fundraising for new funds. This is obviously a good sign for 2017.

A huge event in December was the sudden nationalization of PrivatBank, the largest bank in Ukraine, by the Ukrainian Government. The consequences of this nationalization for the country as a whole are yet to be seen. In the meantime, a new management and supervisory board have been installed, while the bank itself received significant monetary support from the Ministry of Finance of Ukraine.

Unfortunately, no deals were concluded in the engineering and heavy industry sectors, and the FMCG segment also reported no intense activity.

The pharmaceutical market was a noteworthy exception, with several transactions taking place in the course of 2016. Farmak’s investment in Poland was the most prominent one. This investment of a Ukrainian company into Eastern Europe became a pleasant exception at a time of low business activity and general exits by Ukrainian companies from the Russian and Crimean markets. A vivid example of this exiting phenomenon is MHP’s withdrawal from the Russian business by means of exchange of its assets in Russia for the Ukrainian assets of Agrocultura Group. Some further consolidation in the pharmaceutical industry also continued with the acquisition by Darnitsa of a 30% stake in the Borschahivsky pharma plant based in Kyiv. This investment, however, created some tension between old management and the new shareholder.

In early 2017 Kernel, the largest vegetable oil producer in Ukraine, issued its debut Eurobonds for USD 500 million. While this event is not M&A activity by nature, it will likely spur some new acquisitions in the agricultural sector in 2017.

The infrastructure segment, particularly sea ports, is gradually drawing more interest from investors, both local and international. The establishment of a joint venture between MV Group and Cargill, the global agro-industrial giant, may serve as a great example here. As far as we know, Ukrainian and foreign investors are also discussing a number of transactions related to port infrastructure and transhipment terminals.

The dramatic increase of activity in the non-performing loans (NPLs) market
(i.e., the market for secured or unsecured default loans) became a new trend this year. Although the targets of such transactions are rights of claim under loan agreements, such transactions may in fact easily turn into hostile M&A transactions typical of an unfriendly or opportunistic nature.

Unlike the Ukrainian M&A market, the global M&A market once again looks likely to reach stratospheric level in terms of total transaction value. The USA remains the leader in the value and the number of transactions. These transactions sometimes involve Ukraine, if only from the merger control clearance perspective (if new financial thresholds are exceeded). Some transactions (e.g., IT transactions) are even more related to Ukraine, since many of the specialists employed by IT companies are concentrated here. An excellent example of such a transaction was the acquisition of Lohika, a premier software development firm, by Altran, a global leader in innovation and high-tech engineering consulting company. Headquartered in Silicon Valley, Lohika is a leading software developer most active in North America with experienced delivery teams in Ukraine and Romania coming to more than 700 employees, most of them software engineers. Another great example is the acquisition of a 48% stake in GlobalLogic Inc. by Canada Pension Plan Investment Board. GlobalLogic Inc. is one of the top-5 global outsourced product developers headquartered in the USA, having 11,000 employees with significant operations in Ukraine, India, Slovakia, Argentina, Poland, and the US.

What Has Not Happened so Far?

First, everyone expected massive privatization to be launched in Ukraine. Unfortunately, this has not happened yet, although there were two attempts in 2016 to sell the Odesa Port Plant, one of the largest fertilizer producers in the world. Privatization of state-owned electricity generation and electricity distribution companies has also been postponed until 2017. At the moment, privatization of Ukrspyrt, the largest state holding of spirit production plants, is actively discussed, though it has not yet been initiated. Although there are undoubtedly a number of reasons for these delays, the market continues to hope for one or more successful privatizations in 2017.

Second, the Ukrainian Deposit Guarantee Fund has not begun to sell its assets actively, even though it has so far accumulated an enormous amount of assets previously owned by liquidated banks. The Fund has already carried out an inventory of available assets, and its representatives report that they are working on the creation of transparent sales mechanisms involving the use of auction marketplaces, including the ProZorro public procurement system.


Both economic and psychological factors are working to restrain M&A in Ukraine.

Economic factors include the low purchasing power of the majority of Ukrainian investors and the absence of high-quality assets for sale. At some level, this is a repetition of the situation in 2009 when very many companies became insolvent, yet their owners refused to sell them at the actual market value. However, compared to that previous crisis, Ukrainian banks this time are more aggressively disposed and ready to enforce pledged assets. In our view, it is definitely good news that Ukrainian bankruptcy and financial restructuring laws have been actively improving.

The restraining effect of foreign exchange restrictions in Ukraine serves as an unconditional limiting factor. However, gradual liberalization of these restrictions — namely the permission to pay out dividends in part — is definitely bringing a positive impact. The National Bank announced in January 2017 that further liberalization should be expected in the course of this year.

The procedure for purchasing rights of claim under loan agreements has a number of drawbacks, which certainly restrict the free sale of default loans and serve as a restraining factor for foreign investors.

Psychological factors should also be considered, since the fear of corrupt Ukrainian courts still prevails. However, these fears may be gradually dispelled upon the successful implementation of judicial reform in Ukraine, which commenced in September 2016.

Unfortunately, the conflict in Eastern Ukraine, the annexation of Crimea, and potential Russian aggression still puts considerable pressure on the Ukrainian investment environment. Yet, as we can see, Ukrainian investors have already come to terms with these factors, while foreign investors are getting used to them.

Legislative Background

During the past year, the legislative environment experienced a number of changes that, in particular, had a positive impact on the M&A market, including:

— significant reduction in regulatory requirements in Ukraine

— an increase and enhancement of financial thresholds for merger control purposes

— an adoption of critical changes to the Law on Joint Stock Companies that came into force on May 1, 2016

— cancellation of the requirement to register foreign investments in Ukraine

— adoption of legislative amendments aimed against raiding, in particular the introduction of mandatory notarization of documents changing directors or making other changes in membership.

It is also crucial to highlight a number of draft laws submitted to Parliament for consideration, including the Draft Law On Limited Liability Companies, Draft Law On Shareholder Agreements, and Draft Law On Squeeze-out/Sell-out. The adoption of all these draft laws should improve the quality of corporate legislation in Ukraine and may create a climate for joint ventures to function properly in Ukraine and investors to rely on the substantial flexibility of new legislation.

In late December 2016 and January 2017 these laws were passed in the first reading by the Ukrainian Parliament and the legal community has big hopes for them that they will be adopted in their final readings by the spring of 2017.