Risks in M&A transaction by Oleh Malskyy

Assessing the risks in M&A transaction in Ukraine may turn difficult as there may be a vast number of “country inherent” risks as well as hidden “commercial/political” risks.

The role of the good lawyer will be to provide the client with sufficient background to make an educated assessment of such risks. Country inherent risks would include lots of minor irregularities and violations that may lead to imposition of fines. If viewed in a very conservative way – any such risk may be seen as substantial and theoretically may lead to a bigger trouble. However, in practice, this is not always so and such risks may turn to be immaterial. One should not “overlegalize” such risks but look into their practical implication and history of application. Latest state policy is to de-regulate the business and shorten the list of required licenses and permits.

More serious risks are those of commercial and even political nature. To unveil such aspects an in-depth commercial intelligence is usually required. Many businesses are in one way or another related to politically exposed persons or silent partners which may turn to be an issue post-acquisition. Understanding the reality and rules of the game are important. Representations and warranties under English law transactional documents may turn to be of no use in practice.

Unfortunately, when assessing the risks, it should be taken into account that many things which are counter logical may be possible and general 3-year statutory limitation period may not always work as the best security blanket. Rumor says that a case was reopened recently relating to 10 year old acquisition of a land plot, on which the commercial building is currently in operation.

Usually, post acquisition measured should be applied to avoid any potential historical risks that may be hidden and acquired together with the target or asset. Despite any additional cost that may arise in such respect, such post acquisition restructurings always turned to be a helpful tool in defense strategy if the need arises.

Due care, broader view and creative thinking must be applied by attorneys when assessing the risks for the client.

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