Two companies with identical EBITDA (earnings before interest, tax, depreciation and amortisation) can end up with fundamentally different valuations. What decides the difference is not the profit itself, but whether the business can quickly explain where it came from, how it turns into cash flow, and whether it will recur next year.
Experts from EBS — one of Ukraineʼs leading consulting firms, which since 1998 has supported deals and advised businesses on audit, tax, legal and financial matters, – Oksana Patskan, Yuri Maidan, Kateryna Garbuz and Iegor Sinitsyn explain how financial, operational, legal and tax opacity affects a companyʼs valuation – and what can be put right before an investor arrives.
The first risk premium is set by the country. The second, by the quality of the companyʼs processes
The Ukrainian M&A market operates under constant uncertainty. An investor is prepared to pay a higher price for predictability, while unconfirmed figures are taken into account through a lower valuation, deferred payments or additional warranties from the seller.
As at July 2026, the American finance professor Aswath Damodaran put Ukraineʼs Country Risk Premium at 16.02%, and the total equity risk premium at 20.35%. By comparison: Germany and the USA – 4.33%, the United Kingdom – 5.13%.
For Ukrainian businesses, the investment discount is made up, broadly, of two parts: country risk and the risks of the company itself. Country risk is a given, whereas the companyʼs own risks can be reduced before the deal even begins. What follows is about that internal discount: where it arises, and how it changes the price and the terms of a deal.
EBITDA before and after due diligence can differ significantly
Oksana Patskan, Head of Management Consulting Practice at EBS, explains: what matters to an investor is not the fact of a profit so much as its quality and whether it will recur once the owner changes. The key word here is normalisation. This means recalculating EBITDA so that it reflects the result of ordinary, recurring operations.
Oksana Patskan, Head of Management Consulting Practice at EBS
The most common adjustment is for so-called one-off costs. A company strips them out of the calculation on the grounds that they will not happen again, when in fact they are part of ordinary operating activity – simply normal for the environment the business works in.
Another case from EBSʼs practice was a review of one of the companies in a group. The financial result looked good, but it was partly produced by savings on services from a related company, which supplied them at a non-market price. To the owner, this is a familiar internal chain. For a buyer acquiring that one company on its own, it is EBITDA overstated by the difference from the market value of those services.
But there are situations where it never even gets as far as normalisation. One telling case from EBSʼs practice: a fast-growing online retailer ran on two systems – an e-commerce platform and an accounting system – with data exchanged constantly between them.
At first glance, the automation was there. But neither system recorded entries on a double-entry basis. That meant there was no way to assess whether all transactions had been captured in the accounts. In that situation, EBITDA normalisation does not even begin: first you have to prove that the accounts capture every transaction.
Inconsistent data and its impact on the manageability of a business
Yuri Maidan, Partner at EBS and Head of IT Consulting Practice, notes that the problem is usually not a lack of data. Companies have accounting, warehouse, production and other systems, but they cannot always get a coherent picture of the business out of them quickly.
Yuri Maidan, Partner at EBS and Head of IT Consulting Practice
In one case, the main ERP showed one set of stock balances, while a separate system that a department kept ʼfor itselfʼ showed another. A stocktake revealed that the actual balances matched neither of them. The company dropped the parallel records, moved its warehouse processes back into the ERP, and is now steadily rebuilding reliable balances while removing the causes of fresh discrepancies.
At another company, sales and purchasing, statutory accounting and costing lived in three different systems. Total sales were known, but answering the far more important question – where the business actually earns its money – meant pulling the information together from scratch every time. The company decided to move to a single ERP in which sales, stock movements and costing form one end-to-end process.
This is where IT stops being a matter of convenience or of how quickly people can work. If the result depends on data being consolidated by hand, on standalone files, or on the people who know ʼhow to work the numbers out properlyʼ, the business is harder to control, to scale and to hand over to a new team. Good automation does not create profit in itself – it makes the way that profit is earned clear and repeatable.
Who pays if a risk materialises?
Legal and tax questions ultimately come down to one thing: who pays if a risk materialises after the deal closes.In one case, an investor was drawn to a companyʼs unique product. The review found that the formulations behind it had been developed by employees, yet the company had no proper documents confirming that the intellectual property rights had passed from the authors to the company.
Kateryna Garbuz, Partner at EBS and Legal Practice Leader
For the buyer, that meant a risk of not gaining full control of the key asset. Such issues rarely pass without consequences: if the risk is not cleared before signing, the buyer will usually build it into the terms of the deal — through additional warranties from the seller, closing conditions or the deferral of part of the payment.
It looks starker still when it is unclear not only who owns the asset, but what exactly is being sold. Another case from EBSʼs practice: a business with a strong brand that in reality belonged to one person, but legally to several companies registered to different nominal owners. The ownerʼs control over the whole structure was backed by nothing more than verbal assurances, and the trademark itself was registered to the owner as a private individual – not to any of the companies generating the revenue.
From the ownerʼs point of view, this is a working set-up that has made money for years. From the buyerʼs point of view, these are questions no price can settle: what exactly falls within the perimeter of the deal, and who is legally able to sell the business.
ʼAny «skeleton in the cupboard» quickly becomes an argument in the price negotiations once the business is under review. If a company cannot demonstrate its rights, its control or the transparency of its key processes, the buyer prices that in as a riskʼ, explains Kateryna Garbuz, Partner at EBS and Legal Practice Leader.
Another case showed how a technical error over some UAH 1,000 cast doubt on the entire chain of transfers of corporate rights. The founder did not pay in the declared share capital but sold their stake anyway, and the company was later resold again. Until the questions over the validity of the earlier transfers of ownership were resolved, the buyer was not prepared to take the deal further.
Not every tax risk is visible during due diligence
Iegor Sinitsyn, Partner at EBS and Tax and Transfer Pricing Practice Leader, points to a different issue: the most significant tax risk is not always where the buyer looks for it.
Iegor Sinitsyn, Partner at EBS and Tax and Transfer Pricing Practice Leader
A Ukrainian company may, for example, have applied a reduced tax rate when paying income to a non-resident under an international convention, and have documented that properly at company level. But entitlement to the relief may turn on whether the foreign recipient was the beneficial owner of the income rather than a conduit, and on whether the counterparty had sufficient economic substance. The information needed for that assessment often sits outside the perimeter the investor reviews.
In transfer pricing, the risk can be buried deeper. The transfer pricing reporting package may be formally in place, but the approaches built into the documentation to demonstrate compliance with the ʼarmʼs lengthʼ principle may be aggressive or thinly argued.
Standard tax due diligence does not always involve a full substantive analysis of that documentation, so the risk can escape the buyerʼs attention.
So even completed due diligence does not mean that every tax risk has come to light, but widening the scope of the review clearly gives greater confidence in the investment and can produce strong arguments for the negotiations.
Transparency does not create profit, but it decides how much of the result an investor will recognise in a valuation
None of these cases is about a bad business. These were profitable companies that had been trading and growing for years. What pushed the price down was not the quality of the business model, but the inability to show it quickly and convincingly. For an owner, three things follow from this.
- First: the price of opacity is not measured in discount percentages alone. More often it is time, the payment structure, or whether the deal happens at all.
- Second: a risk the company has quantified itself costs ʼlessʼ than a risk the buyer finds.
- Third: negotiations should not be the first time a business puts together a coherent picture of itself. Most of the problems described here can be fixed in a few weeks or months – but only while the timetable is your own and not the dealʼs.
Preparing for a deal starts long before a buyer appears: it is worth going through the same areas yourself, the ones the buyer will examine. This is the so-called pre-sale audit, or self-review.
In large deals, the seller should bring in external advisers. They look at the business through the eyes of the future buyer, help identify risks and prepare for the investorʼs questions.
