Q: Mergers and Acquisitions in Ukraine have been one of the driving forces of Ukraine's recent economic boom. Please tell us about Magisters' M&A practice in this area - where it started, where it has gone, and future growth plans.

A: I joined the practice in early 2005, at the time we had as many attorneys in the whole firm as we do now in the M&A practice. The M&A team now consists of 30 lawyers, 2 partners and 1 counsel - it is the largest M&A practice in Ukraine. We plan to expand our capabilities to include another partner and grow to 40 lawyers by the end of next year. We also have plans to expand to other cities in the former Soviet Union, including Minsk, Almaty, Baku, and Tbilisi. We already have a presence in Moscow.

Q: What types of companies do you serve?

A: We have the capacity to serve the needs of a wide variety of corporate clients. But today our clients represent two main categories:

• The first is the long-term strategic investor who is interested in acquiring a 100% stake in a Ukrainian company. Our clients include more than two dozen banking/financial services/insurance companies. Telecoms and pharmaceuticals are becoming a bigger part of our client portfolio.

• The second type of client is the financial investor looking to divest in 3-5 years. Mostly, these are leading global equity private funds who see Ukraine as one of the most attractive emerging markets in Europe.

The geographic origin of foreign investors in Ukraine has shifted tremendously in recent years — 90% of investment is coming from the West now, and Russia is no longer a leading foreign investor. Most foreign investment comes from Austria, Germany, France, Italy, UK and US.

Q: Where do you see M&A activity headed into the future? Several sectors have seen the consolidation of foreign companies with Ukrainian ones — what is the outlook for Ukraine's M&A market across other sectors of the economy?

A: Foreign investment in general and M&A in particular, is changing the face of Ukraine. Foreign investors bring with them more than just capital: it is the training and the know-how that they bring to the table that changes society. There are many industries that are still ripe for foreign investment. Telecom, including state-owned entities, local cable companies, and Wifi are all primed. Then there is the aviation sector. And of course the military-industrial complex, all of which will need foreign investment to modernize and compete internationally.

Q: What are some challenges to M&A in Ukraine? What should strategic investors know about M&A in Ukraine?

A: There are practical challenges related to the Ukrainian system. The legal and regulatory systems are not fully transparent. This lack of transparency is reflected in the price of Ukrainian assets. For example, recently an Austrian bank purchased a Ukrainian bank for a quarter of the price of what it paid for an equivalent Romanian bank.

A big impediment to doing business is that there is no viable mechanism for dispute resolution in the local courts; instead, disputes go to international arbitration, which is an arduous process.

The good news is that especially when comparing Ukraine to other countries in the region, it is clear that Ukraine is open for investment and set to receive an unprecedented influx of foreign investment. The economy has seen huge increases in liquidity, as well as decentralization, since the 2004 Orange Revolution. Continued liberalization of the Ukrainian economy is a top priority for the new government.

 

Andrew Mac, Partner at Magister & Partners

 

URL of this article online: http://magisters.com/insight/2007-1/m-and-a-andrew-mac-interview