“The heart must burn with deeds, but the head must remain cold,” says Andriy Gorokhov, CEO of UMG Investments.
An interview held by Yuriy Pivovarov, Head of the Stirring Committee of the Kyiv International Economic Forum
On the pandemic situation
Talking about the macro background in investment, Ukraine has attracted about $ 2 billion in foreign investment per year in recent years. If we get the billion this year, it would be great.
In March and April, the number of transactions reduced to zero. It is obvious that the companies have postponed the deeds in view of the new economic reality. Plus, transactions usually involve debt instruments, and banks or investors are not always ready to support against a high level of uncertainty.
Speaking of public deals, we had a small acquisition of Regal Petroleum. The Ukrainian gas company has bought a small company Arkona Gas-Energy. The public cost of the transaction was about USD 8 million.
Our company, UMG Investments, has invested and committed to the Feednova project. This is the plant that will process livestock waste into flour and then sell in the markets of Ukraine, creating import substitution, and export to the Southeast Asia.
Two foreign companies entered the public domain:
One is China Energy Engineering, which plans to build a waste processing plant in Kyiv; the announced amount of investment is 238 million dollars.
The second one is German Leopold Kostal, which plans to build a car electronics plant, the amount of transaction is 39 million Euros.
On the renewable energy market
Ukraine has a new Minister, and a medium term policy and strategy for working in this market is being formed. It is important for our investment company to show a green energy case. Now it is difficult to speak about it, the question of the power market is not solved yet, we will look in 3-6 months, but I believe that the power industry will further develop with the smart approach of participants.
Investment situation in the world
In the spring, the number of deals in the world fell by a third, and most of them were deals initiated by companies before the crisis, about 1,200 in total. They have been closed because they were either in the final stages of signing documents – for investors, goodwill is often more important than abandoning the deal – or investors in the new economic reality understood that they could make money with it.
- 18% occurred in the field of computer services, programs, equipment, and semiconductors. The multiplier to EBITDA was 20.
- 12% of transactions took place in industrial automation and electronics, the multiplier to EBITDA was 15.
- 5% of transactions took place in energy, multiplier to EBITDA – 13.
These are the three largest sectors.
If you take the details, the well-known private equity company Blackstone, together with a consortium of commercial enterprises, acquired a controlling stake in the American gas company for USD 6.9 billion.
Another interesting deal, United Technologies Corporation, is a tech company for the aerospace, commercial and construction industries, acquired the American manufacturer of electronics and space technology for USD 89 billion.
That is, the strategist has acquired the company within its industry, understanding how to integrate it.
Even if you change the economic relief, you can reduce competition, combine some assets and get a financial result.
The Sovereign Wealth Fund of Saudi Arabia has acquired shares of four oil companies for $ 1 billion. It seems strange when oil and gas are falling, but yet they consider it necessary to buy. And such cases happen.
Transactions that failed
Xerox was planning to buy HP and, unfortunately, the deal fell apart.
The second deal: one private equity fund planned to buy a controlling stake in Victoria’s Secret for half a billion, based on the company’s valuation of one billion dollars. They entered the final stage, structured the agreement, approached the closing stage, and at the last moment, under formal pretext, revoked the decision.
It was not easy, as I said, for the investor’s reputation is a critical thing.
Investment company in times of crisis
Crisis is a good word, but sometimes I use the words “new economic reality” and sometimes even “challenge.” Do I treat this internally as a crisis, when everything is gone and my head gets hot, instead of being cold and thinking coldly about tasks? No, my head is cold, and I’m curious.
For me, this is the third crisis, so our team is ready. All these years we have been grown, expanded the portfolio, expanded the team, and refined our corporate backbone. We have already gone through this with our top managers, we have never lost, but on the contrary, increased assets, monitored liquidity, built the closest possible relationships with customers, received the most complete information from the markets for quick response.
We did not incorporate the crisis in the strategy – it will be adjusted in each of the assets, based on the current situation. There is a good joke about two economists who meet, and one says to another, “Do you understand what is going on? – Yes, of course, I’ll explain everything to you now! “No, I can explain myself, but do you understand what’s going on?”
During the crisis of 2008, I graduating from my first business school, our professors were advising large corporations and the government, and when we asked them questions, they said, “Guys, against this level of uncertainty, the most important thing is for you to be resourceful, keep your teams in good shape. Yes, the word “strategy” is an important one, but when someone makes a decision under the guise of “strategy,” please remember, it’s not about money, they’re trying to take your money off. “
During a crisis, it is critical to keep the focus on money, business models, relationships with suppliers and customers, and most importantly, your teams. Eventually, the level of uncertainty will decrease and you will return to a strategy.
Recommendations for Ukrainian business
First, the heart must burn with deeds, but the head must remain cold. If you have a state of panic or sleep disturbance, then you need to seek for help, a team to calm down and make decisions together. Panic only interferes.
Second, you should be close to markets, customers, and find common ground with suppliers. Because they are the ones who will provide insights, both in terms of risks and opportunities. We had clients who said, “Can you do that exactly, but with a small difference?”, and the team replied: “Yes, give us some time to adjust the production process, we will do”. After the crisis, most new customers did not return to competitors; they felt confident with us.
Prepared in partnership with KIEF. Huxleў, an information partner of the Kyiv International Economic Forum
Huxleў – an information partner of KIEF