Business acquisition process in Ukraine.

I would like to share with you my experience in company purchase in Ukraine. I make an import of electronic equipment from China all over the world, but mostly to Europe, India and Middle East countries. Ukraine seemed to be a good and fast growing market. Since 2016 the economy was growing for more than 3% per year. Also there is no much competition in Ukraine and there was a chance to create a business that could generate a good profit. Before 2016 there was a big problem with VAT (Value Added Tax which is 20% rate for most products and services in Ukraine) return. This problem was for decades and that was a big source of corruption in this country. Previously to get VAT tax return you had to spend a lot of time and probably a lot of money. Beginning from 2016 VAT return is made automatically, in online fiscal service system. That is fundamental for import, because all importers pay 20% VAT at the customs. But when the goods are sold to another company (which is also VAT taxpayer) you apply for tax return. I have started first supplies in 2017 and they were successful. The problem I have faced with is if you make just import, you can not make a good profit. To get a big cash I had to buy a warehouse, trucks and to go into distribution.

So I had two options. I could separately buy or build needed warehouse (it will be used as a main hub), trucks (to make deliveries), hire needed employers and organize a proper management. Or I could buy already existing company. It took some time to find needed company that have all needed equipment etc. But the good thing is that now you can easily find a proper asset in Ukraine on a very and very good price. It is a period right after a heavy crisis in Ukraine so most of assets, including stocks, real estate, businesses, etc are very underestimated. The bad thing is that business acquisition in this country has some specific and risks so I had to hire really good solicitors to check the company, make a due diligence and make all M&A process. It took me more than a week to find a proper lawyers. I had meetings with top 10 ranked law firms in Ukraine, but there I have found only show off, flashy offices, high prices and zero understanding of my needs and goals. My friend from embassy of United States in Ukraine advised me “Capital Law Consulting” Law Firm as good lawyers and barristers. And he was right. In Ukraine you can not be 100% sure that you will get a good legal services even if it is law firm ranked 1. It is especially difficult to find lawyers that will have clear understanding about your needs. But I was lucky to find a good Ukrainian law firm.

The whole process of M&A took about a month. First my solicitors had to make legal due diligence, check corporate structure of the company I was to acquire, debts, permissions, all labor contracts, property rights. The land under a warehouse was in lease from the state of Ukraine (it is not a rare thing in this country) and a very important aspect. It was also to be checked the risks regarding this lease contract, possibility to buy this land in a future. Next stage was business acquisition itself. For this I had to make an investment, bring money to my investment account in Ukrainian bank. As US citizen I faced more control from the side of Ukrainian banks due to FATCA act. But nothing serious. I had just to show a source of my funds. That was easy. It is important to understand that banks in Ukraine are much better than European banks. In Ukraine you will not face so much bureaucracy and you will spend much less time dealing with Ukrainian financial institution than with EU one. During M&A my solicitors found few small problems in that company that helped me to decrease the cost for 10%. This is a good Chinese trick. Find a problem (that actually is not), so you can chaffer and bargain! As I wrote before, it is really good period to buy a good business in Ukraine. Also you can get a good discount when you begin to negotiate with vendor. Also consider that Ukraine is at least 50% cash economy so sometimes, so when you offer cash (which is always better for the one who sell) you can get additional discount because he will avoid some taxes etc.