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HEIGHTENED M&A ACTIVITY IN UKRAINE : News archive
03 July 2007
During 2006 – and particularly in the first half of 2007 – there has been a noticeable increase in M&A activity in Ukraine. The country’s strategic location, growing per capita incomes, a highly skilled population and increasing economic diversification all support an increasingly confident and sophisticated Ukrainian corporate sector – which has become one of the most sought-after places to invest in Eastern Europe. The benign macroeconomic environment, continuing industrial growth facilitated by the bank credit expansion and consumer boom in the major cities of the country are the major drivers fuelling the healthy interest of the foreign buyers in acquiring some of the Ukraine’s leading FMCG companies.
In February 2007, IDS Group, Ukraine’s leading producer of the bottled water, acquired Acquarius – the owner of the well-known in Ukraine water brand “Truskavets” for an undisclosed amount. In March 2007, Wawel S.A., a Polish confectionery manufacturer, bought Lasoshi, a confectionery company located in Western Ukraine for an undisclosed amount. In June 2007, PepsiAmericas Inc. and PepsiCo Inc. reached the agreement to buy 80% of the equity capital of Sandora, Ukraine’s leading producer of juices, for a reported $543 million. Also in June 2007, Sweden’s East Capital and Goldman Sachs bought a 24% equity stake in the capital of Vinnifruit, Ukraine’s smaller producer of juices and juice concentrates. A number of further M&A transactions are reportedly at the stage of preliminary talks, in particular in meat processing and beverage sectors. A fair amount of the M&A effort has also occurred in the dairy industry.
In February 2006, Russia’s leading producer of baby foods Nutritek acquired 56% of the leading Ukrainian baby dairy foods manufacturer Horol Baby Dairy Plant for a reported amount of US$ 10 million. The acquisition was driven by the lower costs of production in Ukraine, the potential for domestic expansion and possibility of export to Russia (severely undermined since then).
In October 2006, Rodich Dairy, a small Ukraine dairy plant in Kherson Region of Ukraine, was acquired by Danone Group for a reported amount of US$ 14 million. The immediate plans of the new owner were to upgrade the plant and to start the production of the “Activia” yoghurts currently imported from Russia.
At the end of 2006 – beginning of 2007, Renaissance Partners, a private equity arm of a leading Russian broker Renaissance Capital acquired the controlling interest (51%) in “Club Cheese”, formerly one of the leading producers and exporters of the Ukrainian hard cheese. Supplying close to 95% of its output to Russia, “Club Cheese” was struggling to meet its financial obligations when the Russian market suddenly closed for Ukrainian dairy products in January 2006. Heavily indebted and committed to a massive capex programme, the company did not manage to obtain approval to export to Russia and could support the business financially for a limited period only. The new owner, Renaissance Partners, is focused on mass production of quality hard cheese for the domestic market in Ukraine and export to Russia.
In April 2007 Fromageries Bel, the French cheese manufacturer, announced the acquisition of controlling interest (95%) in Shostka Dairy Plant, Ukraine’s leading producer of hard cheeses. Although the terms of the transaction were not disclosed, it is thought that Fromageries Bel paid some US$ 50 million for Shostka Plant. The strategy of the new owner is to continue to support the well-known Shostka brand in Ukraine as well as to improve the efficiency of the production processes. Expansion of the product range with a number of Bel’s own cheeses is also likely.
A number of smaller transactions – mostly sales of the regional dairy businesses to the Russian trade buyers – were also completed in 2006-2007. While some of the dairy acquisitions clearly bore the signs the distressed-asset sales due to the Russian embargo, some of the companies, Shostka Plant in particular, commanded surprisingly high valuation on the basis of operating and net profit.
As the only public company in the context of the Ukrainian dairy sector, Ukrproduct Group has been watching the changes in competitive landscape very carefully. Immediate trading implications of the recent acquisitions are, in the view of the Group’s executives, positive to the Group. While the entry of the world’s leading cheese manufacturers in Ukraine may appear to bode badly for the Group’s trading position, the reality is more encouraging. The entry of the world dairy majors in Ukraine is likely to help strengthen the product quality standards that the Group has always aspired to promote. Small-scale, low-quality, low-price regional and local dairy manufacturers will increasingly have to follow the same quality standards as applied by Ukrproduct Group and other quality players in Ukraine. Also, the increasing quality is likely to attract new customers thus expanding the market for dairy products, both in volume and value terms. |
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