While overall merger and acquisition activity in Ukraine remains far below pre-crisis levels, a flurry of important deals unraveled in early 2011 involving assets in Ukraine’s promising agribusiness sector.
Experts said a handful of cash-rich Ukrainian agribusiness tycoons led the recent surge of activity by snapping up smaller businesses that are well-positioned to profit greatly in the future from Ukraine’s rich farming land and potentially huge food sector.
With demand for Ukrainian farming and food businesses destined to grow in pace with global food demand, experts predict that international agribusiness groups from the West and as far away east as China will in coming years sharply boost their presence in Ukraine via M&A transactions.
With such dynamics at play, Ukraine’s agribusiness sector is on course for a period of consolidation that could, in turn, bring in the billions of U.S. dollars in fresh investment that are needed to turn this nation once described as the “Breadbasket of Europe” into a top world food supplier.
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“All major agribusiness holdings in Ukraine are currently eyeing expansion through acquisitions and are building up their farming land banks,” said Vitaliy Strukov, managing director at Kyiv-based investment bank Concorde Capital.
“We expect about 20-30 deals worth $1.5-$2 billion to close in the sector this year,” Strukov added.
International agriculture giants from Europe and the U.S., including Cargill, ADM, Toepfer and Bunge, have long established a solid presence in Ukraine through M&A deals and greenfield projects. In the long term, they are likely to further expand in Ukraine. But damaging export restrictions on grain exports imposed last year by government could make them hesitate on closing acquisitions in the near-term.
More eager to jump in and get a larger share of the mushrooming Ukrainian market are Russian agriculture conglomerates such as Cherkizovo Group, Rusagro and Prodo. Sources said they are already holding negotiations. Several deals involving Russian buyers could be announced by the end of the year.
If the deals go through, the Russian groups will be following in the footsteps of domestic agribusiness companies which, for now, remain the most active buyers and sellers of everything from farms, sugar refineries and food processing businesses.
Reaping the harvest
In March Kernel, Ukraine’s top sunflower oil producer bought a 71 percent stake in Ukrros, the nation’s third biggest producer of sugar. Kernel paid $42 million for Ukrros and agreed to cover its $100 million debts. Sources said that Kernel plans to spend about $350 million more this year on acquisitions.
Kernel is controlled by lawmaker Andriy Verevsky.
All major agribusiness holdings in Ukraine are currently eyeing expansion through acquisitions and are building up their farming land banks.
– Vitaliy Strukov, managing director at Kyiv-based investment bank Concorde Capital.
Another acquisition-hungry rising star in Ukrainian agriculture is Oleg Bakhmatyuk. He has been on a shopping spree for agriculture assets ever since his Avangard egg products company raised $210 million last June by floating a 20 percent stake on the London Stock Exchange.
Some analysts say the western Ukrainian could now be the single largest owner of agriculture land in the nation. The farming business in Bakhmatyuk’s agribusiness empire is managed by his Ukrlandfarming company.
In early 2011, Ukrlandfarming acquired Rise and Dakor, making it the second largest sugar producer in Ukraine after Astarta. The value of the deals was not disclosed but experts estimate it as about $500 million including debt and equity.
Also this year, a separate company controlled by Bakhmatyuk paid about $25 million for a poultry business in the U.S.
For now, a large share of the focus has been on acquiring companies that have long-term leases on agriculture land. M&A activity could shift into higher gear if Ukraine’s government makes good on its promise to cancel a longstanding moratorium on the sale of agriculture starting next year.
Across the board
Apart from agriculture, experts said M&A activity is starting to simmer in other areas, foremost banking, chemicals, fast moving consumer goods and retail.
M&A activity has a cyclic nature. It depends on many factors,” she said. “Global volumes of M&A transactions won’t reach peak levels of 2007 until about 2013-2014.
– Natalia Khoruzhaya, partner at the Kyiv offices of KPMG
In general, however, buyers remain cautious about closing deals, said Natalia Khoruzhaya, partner at the Kyiv offices of KPMG, one of the so-called Big Four accounting and auditing firms.
“M&A activity has a cyclic nature. It depends on many factors,” she said. “Global volumes of M&A transactions won’t reach peak levels of 2007 until about 2013-2014.”
While the average value of the deals remains low, by far the biggest M&A transaction in Ukraine this year is the privatization of fixed-line telephone monopoly Ukrtelecom.
In March, Ukraine’s State Property Fund sold a 92.79 percent stake in the company for $1.3 billion to EPIC, an Austrian investment firm. The sale was widely seen as uncompetitive. Analysts and experts say that in making the purchase, EPIC most likely represents the interests of businessmen close to Ukraine’s political leadership. EPIC denies such accusations.
Kyiv Post staff writer Oksana Faryna can be reached at [email protected]
