Oleh Malskyy – Partner at ETERNA LAW
Artem Kovbel – Co-owner of Crowe Erfolg auditing company
Mergers and acquisitions (M&A) are a class of economic processes involving the consolidation of businesses and capital. Despite the war and economic instability, the Ukrainian M&A market remains very active. This reflects the new trends and challenges facing Ukrainian businesses.
According to global statistics, times of crisis always increase transaction costs (expenses) due to growing mistrust between the parties involved.
The current landscape of the M&A market in Ukraine
The Ukrainian M&A market today has its own unique characteristics, largely shaped by the realities of war.
Types of deals and participants
The M&A market in Ukraine is characterised by two main regional features (within the country and abroad) and three types of participants:
Domestic deals: 90% of deals are local (domestic), which is caused by capital migration within the country.
There is a ‘Big Marlin effect’ (‘Big Merlin effect’) when large companies (e.g., OKO, TAC, Epicentre) accumulate liquidity and absorb smaller players. Such deals are aimed at scaling up and increasing market share.
Ukrainians are buying foreign companies abroad: These deals are aimed at geographical and currency diversification. The goal of such expansion is currency hedging, increased margins, capitalisation growth, and protection from raider attacks.
Foreigners buy or sell Ukrainian companies: The exit of transnational companies from the market is a negative signal for the economy. However, for cash-rich local peers, this is a convenient opportunity to buy distressed assets at a discount. Foreign investors who do enter the market act with maximum caution and often buy assets concentrated near the western border, where the risks of asset destruction are lower.
Motivation of participants
The buyer seeks to exploit the existing competitive advantage, such as liquidity in hryvnia, which cannot be transferred abroad or distributed as dividends. The main goal is to buy the asset at a lower price.
The seller is in a difficult situation. Some sellers are ready to exit the business due to changing life priorities, relocation of families, or because they see no prospects for transferring the business to their children who have moved abroad. Sellers often hope that after the war, assets will be worth more than they are now.
Business valuation and price adjustments during wartime
Determining the price of an asset is one of the most controversial issues. Valuation approaches vary depending on the industry.
Valuation methods:
EBITDA multiple method: Often used by investment bankers.
Net asset method: Characteristic of companies with a large resource base.
Industry approaches: For example, in the financial sector (leasing companies, banks), the cost of capital indicator is used. In the retail sector, the value of a business may be equal to its annual revenue.
Military adjustments (discounts):
During wartime, discounts are applied to traditional valuation methods.
For manufacturing companies in Ukraine, a multiplier of 2–3 EBITDA is applied, while for companies whose revenue is generated abroad, a multiplier of 7–9 EBITDA may be applied. This difference is explained by the risk that ‘flying missiles could destroy the company’s production facilities.’
In the financial sector, a discount of 10-30% is often applied to the amount of capital, whereas before the war, a premium of 50-60% was applied.
In some cases, the parties agree on flexible pricing models, such as paying 90% of the price now and 10% later, depending on future financial performance (EBITDA) in the post-war period. The seller may also simply name a price, assessing their intangible efforts (e.g., 20 years of work) to offset lengthy discussions on valuation approaches.
Due diligence and the role of forensics
Any times of crisis increase the need for the most thorough verification of the object of purchase. Transaction costs include payment for the services of a whole range of consultants.
Key consultants (transaction expenses):
Financial auditor (Financial DD): Checks key financial indicators (revenue, gross profit, EBITDA, net profit), as well as accounts receivable/payable, off-balance sheet debts and the profitability of profit centres.
Tax auditors: Verify the correctness of basic tax payments (VAT, income tax, payroll taxes). The availability of a clean tax audit report for the previous period minimises potential tax authority claims against the buyer.
Legal DD: Verifies the legal basis for the company’s operations, including property documents, the existence of court cases, the powers of the director and shareholders, and prepares a draft sale and purchase agreement (SPA). Lawyers also verify the need to obtain permission from the Antimonopoly Committee of Ukraine (AMCU) for concentration.
Project lead manager: Responsible for managing the team of auditors and lawyers, as well as for conducting negotiations.
The special role of forensic audit in M&A
In the realities of countries with transitional economies, which include Ukraine (emerging markets), forensic audit has evolved from a highly specialised tool to a key element of strategic management, actively used in mergers and acquisitions.
Forensic auditors are sometimes a mandatory stage of M&A.
Reason for involvement: The quality of accounting in Ukrainian companies is complicated by ‘multilevel, archaic and pluralistic’ practices, in particular the existence of several management reports that are not related to the official one.
The task of forensic and financial data recovery specialists: To collect, restore, consolidate the company’s key financial indicators and submit them to the auditor for verification. Without this work, Big 10 auditors are highly unlikely to undertake financial DD/auditing, as the company will not pass the audit readiness procedure.
Use in negotiations: Forensics is used on the buyer’s side to justify a reduction in the price of an asset.
Control tool: Forensics can also be used to check the reputation of shareholders (reputational forensics).
Speed of deals and strategic advice
In the Ukrainian reality, M&A deals should be a sprint, not a marathon. Delays (e.g., six months or a year) are dangerous because of the increased risk of asset destruction due to military action.
An effective M&A strategy, especially through acquisition, is most effective for rapidly increasing market share if the buyer has the liquidity to do so.
Key tips for M&A deals:
Thorough due diligence: In turbulent times, check the purchase objects as carefully as possible using forensic tools.
Time is money: If there is a strategic need, buy assets as quickly as possible without dragging out the process.
Pricing: If the buyer tries to excessively discount the asset, the seller can simply name their price, evaluating intangible efforts to avoid discussions about valuation approaches.
Strategy: It is important to have a clear strategy, because without it, ‘defeats or victories are completely random.’
An analogy for understanding the M&A market in wartime
The Ukrainian M&A market can be imagined as a large chess game during an earthquake. The game does not stop, but the rules are complicated: some pieces (foreign investors) wait on the sidelines until the field stabilises. Liquid players (‘Big Marlins’) actively use the chaos to absorb weaker competitors. In these conditions, forensic audit acts like an X-ray: it not only checks the appearance of the pieces, but also reveals hidden cracks and fakes that could destroy the entire game after purchase.
