Financial Due Diligence

More and more western European firms plan their market entry in Ukraine through buying of an already existing Ukrainian company instead of via foundation of a new subsidiary company.
This has an apparent advantage because the targeted companies already exist on the market which minimize the time for market (development) entry.
Ukrainian target companies are often interested in foreign investments, because they need resources for planned modernization or expansion, whereas financing by own means is often impossible.
In addition there exists strong demand for western Know-how.

Informative Value of Ukrainian financial statements

In case the targeted company is planned to be purchased via share-deal, there arises the problem, that especially for small or middle sized enterprises the given reporting doesn’t provide a real picture of the financial situation of the targeted company.

This is not only due to the fact that financial statements are different to International Accounting Standards, but as well because given accounting doesn’t show the real or all transactions having taken place.
The reason for this is that accounting is focused on minimization tax payments.
In addition an obligatory audit for most of Ukrainian companies does - in fact - not exist, this leads to further neglect of accounting in general.
Though financial reporting should be handed to Ukrainian authorities, its content is usually not checked.

Within the Financial Due Diligence services provided by Otten Consulting, we do not only analyze given balances and P&L statements. We provide comments to Ukrainian financial reporting in such a way in order to receive a picture that reflects the real financial situation of the targeted enterprise.

Business Valuation

Business valuation in Ukraine takes much more time in comparison with western companies. Detailed and thorough business plans are often absent, which makes cash-flow oriented valuation methods like DCF analyses difficult.
Even more - if a price conception exists, it’s often just based on demand on investment.
Official statements on real market value of fixed assets often causes problems as well, as appraisals by officially authorized experts often do not show current market values at all. This results from applying old norms set by the state, in order to be corresponding to formal rules. Here as in the accountancy as well you can still see the dominance of „Form over Substance“.

Even if the above mentioned doesn’t seem to be very promising, in the recent past a quite reasonable number of transactions has taken place on the Ukrainian market.
Especially in the view of the promising market development, M&A transactions will be an important alternative to an entry via establishing a new company.