Oleksiy Oleynikov, Managing Partner of InVenture about the prospects for the sale of business and assets during a wartime in Ukraine
The war with Russia sharply raised the question of the survival of most large, medium and small businesses in Ukraine. Many Ukrainian enterprises in the conditions of the war faced simultaneously with a wide range of problems that they had never dealt with before.
Most of them can be summarized as follows:
- Loss of business due to the annexation of the territories of Ukraine and, accordingly, the seizure of assets.
- Loss of business and assets due to their physical destruction after shelling.
- The impossibility of doing business due to its territorial proximity to the front line.
- Departure of key employees from Ukraine or their relocation to safer territories.
- Decline in consumer demand and loss of sales markets, including the possibility of exporting products to the Russian Federation and Belarus.
- Interruptions in access to various important factors of production (raw materials, electricity, etc.).
- Difficulties with logistics.
In such a situation, business owners in Ukraine have not a big choice of actions:
- suspension of activities or conservation of production;
- moving assets to other regions or countries;
- attraction of financing for restoration of activity;
- bankruptcy and liquidation of enterprises;
- sale of a business or sale of liquid assets.
Today we see how the beneficiaries of the largest business in Ukraine are irretrievably losing the capitalization of their assets. Already in 2023, the usual list of the TOP-100 richest people in Ukraine will change significantly. The positions of representatives of large Ukrainian businesses in the metallurgy sector, the agricultural sector, retail, construction, processing and mining industries will significantly decrease. At the same time, the positions of businessmen in the real estate sector, IT, in some sectors of the service sector will be relatively stable. Many odious individuals associated with Russian business, due to sanctions and the nationalization of assets, will completely disappear from view.
The redistribution of forces and “natural selection” will also occur in medium and small businesses.
As you know, the greatest uncertainty for Ukrainian business was observed in the first 2-3 months of the war, after which the owners began to gradually look for ways out of the situation. However, not everyone succeeds to this day. According to the latest social surveys (as of October 2022): 85% of companies have stopped their activities or significantly reduced sales volumes, and only 15% of companies have maintained the same volumes or slightly increased them.
In any case, in order to survive, most companies significantly optimize their costs. For example, compared to the pre-war level, 42% of employees of Ukrainian companies faced a reduction in salaries, 34% of the staff were sent on vacation, 33% of the staff were made redundant.
Today, 70% of respondents say that the main factor in the resumption of business will be access to investment and cheap loans.
To sell a business in Ukraine will become even more difficult
The sale of business in Ukraine in the pre-war period was also characterized by weak liquidity of companies, low competition for assets and low transparency of transactions.
The M&A market in Ukraine is poorly developed in comparison with Poland. The volume of M&A transactions in Poland in 2021 amounted to about $14 billion versus $2.7 billion in Ukraine (a difference of more than 5 times!), In terms of the number of M&A transactions, the difference is also 3 times not in favor of Ukraine.
Under the conditions of war, the task of selling Ukrainian business becomes even more difficult, but hopeless. From InVenture’s own observations, the number of people wishing and receiving applications to sell assets or operating businesses during the war increased significantly, and there were significantly fewer buyers.
Some demand appears for industrial and warehouse real estate due to the relocation of enterprises, land for transshipment with 2 types of railway lines, crop-growing agricultural companies with a land bank and livestock, some segments of alternative energy, food industry enterprises.
Who can become an investor or buyer of a business in such conditions?
Despite the fact that the war had a negative impact on the state of the majority of business owners, some businessmen remained relatively stable and continue to do their business.
Among those who can act as the main driving force for the acquisition of assets and new investments in Ukraine, it is worth highlighting the following categories:
- Companies located in the Central and Western part of Ukraine, whose business, despite the war, was actively developing against the backdrop of the migration of effective demand.
- Export-oriented enterprises, which in the current conditions are in a winning position.
- Businessmen who keep their savings mainly in cash, who successfully exited the assets before the crises and the war.
- Companies whose products are in high demand during the war (for example, in the field of defense and the provision of the Armed Forces of
- Ukraine or goods of high social significance).
- Foreign investors whose strategy is focused on high risks and buying up assets at stressed prices.
- Newly created target funds and programs for the restoration and support of Ukrainian enterprises during the war.
What is the investor’s motivation to buy a business in Ukraine now?
Depending on the profile of the investor, the motivation for buying a business during a war can be as follows:
- Buy a business or assets at a stress price (significantly below cost / below the market price), while discounts can be 30%, 50% and 70%, depending on the situation and the specifics of the assets.
- Solve the issue of business relocation.
- Absorb a weakened competitor.
- Buying a business to expand or optimize your core business.
- Purchase of a new business in connection with the stop or loss of the old business, place of work, the desire to change the field of activity.
- Buying a business / assets with an eye on the post-war recovery of the economy, domestic demand.
How to prepare for selling a business to increase your chances of finding an investor?
- An operating business always looks more attractive than a suspended one, so it is worth actively engaging in anti-crisis management and optimization to keep it alive. However, you need to take a sober look at the situation and not go by inertia, in some cases, in the absence of real prospects for recovery, it is better to suspend a deliberately unprofitable line of business at an early stage and refuse to subsidize it.
- It is necessary to assess whether there is a potential for business recovery in the post-war period, perhaps during this period it is worth concentrating efforts on finding a strategic (possibly foreign partner) or financial investor.
- Ask yourself who needs and why your business at the present time and accordingly form a portrait of a potential buyer.
- Prepare the business for sale, from putting in order the title documents to consolidating important information necessary for the investor.
- Conduct a business valuation, while taking into account the new realities of the state of your market niche, business risks during the war, as well as changes in current financial and economic indicators in 2022.
- If you want to sell a business at this time, you should leave in the past phrases like: “I invested much more in this business”, “go find it cheaper on the market”, “try to build for this money now”, “I was recently offered for it’s .. $ million”, etc.
- In negotiations with buyers at this time, special flexibility and negotiability on the terms of the transaction is needed (this may relate to the form of payment, payment by installments, the transition period for business support, withholding payments, etc.).
- With the search for buyers and support of the transaction, professional investment companies and brokers who have successful technologies and experience in selling a business, direct access to a wide range of investors will be able to help you.