Practice Areas | Corporate law & M&A

Anna Zorya,

Get Under Merger

«Foreign companies have shown little participation in M&A deals except for selling off their Ukrainian assets»,
Anna Zorya, Partner at Arzinger Law Office confirms

—   How would you describe the present situation on the M&A market?

—  The uncertainty in the present economic and political situation in Ukraine, constant exchange rate fluctuation, tougher debt financing terms, scrutiny and a cautious attitude towards Ukrainian companies are only a few factors that have influenced the domestic M&A market. It should be noted that foreign companies have shown little participation in M&A deals except for selling off their Ukrainian assets. Not surprisingly, Russian business was one of the most active players on the M&A market. One can hardly call 2015 a bumper year for M&A. For the time being,  business is in waiting mode. Still, some companies dare to take risks and get the desired results. As they say, uncertainty and risk are the main difficulty and the main chance for business. 


—  Were there any significant changes in 2015 that will influence the M&A market?

—  Last year was certainly one that was full of changes that will fundamentally affect the corporate relations and the M&A market. For instance, the following changes have been introduced for joint stock companies: a derivative action mechanism allowing shareholders to sue unscrupulous managers; a concept of independent directorship; abolition of the mandatory payment of dividends through the depositary system; improvement of the procedure to determine the market value of securities; lifting of the limitation on the number of shareholders in private joint stock companies. The above changes will come into force on May 1st, 2016. 

Moreover, the laws on identification of the ultimate beneficiaries of legal entities have been amended as well. The goal of the amendments is to create a transparent ownership structure, to fight money laundering and financing of terrorism, and to disclose to the government who stands behind legal entities and bears final responsibility for their operation. Still, as so often happens, good intentions have led to poor consequences. Considering that there are no mechanisms in place to check information provided on beneficiaries, this novelty does not work. It should be noted that this new provision influences the use of non-resident structures. Many entities have already started to revise the jurisdictions of non-resident companies. It is very likely that jurisdictions that have not signed information exchange agreements with Ukraine, in particular, regarding the exchange of information on ultimate beneficiaries, will become the most desirable ones.


—  What will legislators do next to improve the investment climate and to develop the M&A market? 

—  The current state of affairs calls for the passing of a law on limited and additional liability companies. It will make it possible to significantly improve the operating environment for companies with limited and additional liability, to create an appealing alternative for many Ukrainian companies and foreign investors. This matter has been in the air for many years already and we hope that it will be finally resolved soon. 


—  What sector is the most attractive for the M&A market?

—  Ukraine has always been attractive for investors regarding agriculture. Even if there are only few transactions in the agricultural sector, they are usually not necessitated. It should be noted that in 2015 the government began to think about fundamental and systematic reforms. To that end, in early 2015 the Ministry of Agricultural Policy and Food of Ukraine initiated development of the Unified Complex Agricultural and Rural Development Strategy for 2015-2020. In addition, the deregulation law was passed in 2015 and abolished a number of permits and other state regulatory measures for agriculture and some auxiliary sectors. These changes shall cut operational costs, reduce corruption and bring Ukrainian legislation governing single areas in line with EU laws.

Moreover, the energy sector will become appealing again, and the food industry will be in demand even more. One can also expect interest in the banking and telecommunication sector.


—  Have any new trends appeared on the market?

—  In 2015 new trends have emerged due to the passing of anticorruption laws. By sale/acquisition of a company the main focus is on corruption risks. In order to find and to eliminate corruption risks in a company's activity, independent experts, including auditors, may be involved as it is very important at the current stage of development of the legal framework. We advise carrying out an analysis of anticorruption compliance procedures (including anticorruption policies), to audit them regarding their adherence and effectiveness, and to analyse the possibility of prosecuting the company and its officers for corruption offences. The trend that did not exist before is, therefore, the new type of due diligence, namely the anticorruption one. Interesting, though not surprising, is that if there are any corruption risks, the buyer may refuse the asset acquisition. 


—  When structuring M&A deals parties tend towards English law. Will the parties ever prefer Ukrainian law?

—  Usually, there are the following reasons for parties to choose foreign laws for M&A deals. Foreign laws (mainly, English law which is very common for M&A deals) provide for a broad spectrum of remedies, including such important concepts as warranties, representations, and indemnities etc., which have no direct analogies in current Ukrainian legislation. A turning point is only possible if Ukrainian laws are amended and provide a possibility to conclude shareholders' agreements; if a law on limited and additional liability companies is passed; and, most importantly, if it becomes possible to protect one's rights in a court of law. We can only hope that the prospect of applying Ukrainian law is not that distant. 


—  What piece of advice would you give Ukrainian lawyers considering the turbulent situation on the M&A market? 

—  It is necessary to refine and to improve yourself, to believe in yourself and in your country. Nowadays, young lawyers have many possibilities and should make use of them. Don’t be scared to learn, as standard education gives standard results. If you want unconventional results, start with self-education. As Charles de Gaulle once said: "Always choose the most difficult path –will not encounter competitors on it you." It has proved to be true in my own experience on many occasions.