Investors have mostly stayed away from Ukraine since the start of the full-scale invasion, but the tides are turning, according to a new report from KPMG Ukraine, an accounting organization based in Kyiv.
The first half of 2024 saw 25 mergers and acquisitions (M&As) bringing in $510 million, up from 24 M&As worth $390 million in the first half of last year.
More deals can be expected throughout the year, KPMG believes, as Ukraine’s economy gradually recovers from a sharp drop of 29% in gross domestic product at the start of the full-scale war. Continued energy blackouts and $20 billion in outstanding debt to international bondholders continue to be roadblocks to further investments.
The breakout of the war saw a huge decline in M&As. Ukraine had just begun to recover from the fallout of the pandemic in 2021 with 75 deals bringing in nearly $2 billion. But 2022 saw the worst results in the last 10 years with only 28 deals amounting to $494 million.
The situation improved dramatically in the second half of 2023, as inflation dropped and GDP grew. Ukraine is now assuring investors with a series of programs including the Export Credit Agency (ECA), a $350 million insurance program with services firm AON and the U.S. International Development Finance Corporation, and the “Made in Ukraine” platform.
While the number of M&As is increasing, transparency in deal values dropped to 48% in the first half of 2024, compared to 58% in the first half of 2023. A more accurate picture can be drawn at the end of the year, according to KPMG.
From what can be seen, deals are raking in much more cash this year as the average value jumped from $28 million in the first six months of 2023 to $43 million for the same period of 2024. In one case, French investment firm NJJ Capital purchased Ukrainian Internet provider "Datagroup-Volia” for $120 million.
However, the largest transaction of the first half of 2024 was IT firm Creatio’s $200 million funding round. The tech sector, which weathered the storm of war far better than other industries, topped the chart with nine deals totaling $305 million. Communications and media followed with one deal worth $120 million.
The tech sector also attracted many foreign investors, with six of the seven inbound transactions involving IT companies. The sector similarly dominated M&As abroad with two Ukrainian IT companies, Ciklum and Intellias, buying companies in North America.
Since the start of the invasion, Ukrainian investors across multiple sectors are increasingly looking abroad. Outbound deals made up a third of overall transactions and totaled 11% of the overall value of transactions, skyrocketing past pre-war levels.
However, the same trend is not seen in foreign investment into Ukraine, which declined from nine deals in H1 2023 to seven in H1 2024. Nonetheless, inbound deals brought the most cash, making up 80% of the value of all transactions.
Domestic M&As continue to make up the majority of transactions with 40% of the deals. However, they were much smaller and only made up 9% of the overall value. KPMG considers that the disparity could be down to the lowest transparency rate since 2013.
Domestic investors largely pumped money into construction and real estate, as well as agriculture, consumer goods, and IT.
Ukraine’s sweeping privatization efforts have also boosted investment opportunities. The first five months of 2024 attracted more money through privatization than the whole of 2018. At the same time, auctions are witnessing a record number of bidders with over five participants on average.
Major obstacles still stand in the way of Ukraine’s economy. The overarching issue is Russia’s brutal energy attacks that have forced Ukraine to introduce rolling blackouts across the country since mid-May and impacted its GDP growth.
“Blackouts which, if left unchecked, will continue to significantly constrain growth throughout 2024 and 2025,” KPMG said.
Ukrainian companies are helping decentralize the power grid and strengthen energy infrastructure. DTEK, Ukraine’s largest private energy company, plans to build wind farms such as the 650MW Poltava farm. State-owned oil and gas company Ukrnafta will build maneuverable power generation facilities, including over 1000 MW of gas generation.
Ukranfta’s project will be funded by the European Bank for Reconstruction and Development (EBRD) and the Ukrainian government with oversight from Siemens Energy Global, an energy company, and Deutsche Bank.
Moreover, Ukraine owes $20 billion to international bondholders. A preliminary deal was reached on July 22. If the restructuring is finalized in the coming weeks, it would send a positive signal to investors concerned about Ukraine’s potential default and financial commitments.
Dominic Culverwell
