The M&A Due Diligence Process in Ukraine vs. Sweden A Comparative Case Study

Abstract

An essential part of a successful merger or acquisition (M&A) lies in proper due diligence of high quality. Ukraine has, compared to Sweden, had some struggle with political issues and business culture of lower transparency which affects the transaction costs of M&A. Despite this, there is a large and growing IT industry in Ukraine which is starting to consolidate. With increased M&A activity, the due diligence activity will increase. Currently, there is a lack of academic case studies on the due diligence process in Ukraine which European investors need to conduct better due diligence in the country. For this reason, this study aims to clarify how the due diligence process of a mid-sized IT-company differs when the target company are active in Ukraine compared to Sweden, from a buyer’s perspective. To answer this, a case study was performed based on participatory action research in Ukraine and interviews with people with experience with conducting the different types of due diligence. Moreover, the literature review explains the general framework of a due diligence process in Sweden and approximations of the Ukrainian process. The findings from the interviews, observations and literature study revealed information regarding differences in legal and regulatory considerations, political factors, data reliability and availability and how the due diligence process is affected by the differences. The case study reveals that a consequence of the low transparency and corporate legal structure is that M&A deals in Ukraine are more trust based to cope with the increasing due diligence transaction costs. As a result, the general depth and rigorousness of due diligence in practice in Ukraine are lower. Also, relationships were found to be a considerably more efficient way to access data than conventional due diligence and thus speed up the process in Ukraine. In its essence, the study concludes that a risk-averse buyer in Ukraine should in more detail consider building relationship to reduce transaction costs, understand the corporate structures and how to reduce the risk of corruption and corporate raiding, and keep an extra eye on upcoming governmental changes. All these are types of extra transaction costs and practical implications that a buyer must consider when estimating the cost of the due diligence.