Key Points to Note for M&A in Uzbekistan

1. Legal and regulatory environment

The Uzbek government is strongly supporting the growth of its IT sector , establishing special economic zones such as IT parks and the international digital technology center "ENTERPRISE Uzbekistan," which offer incentives such as tax breaks (including zero tax rates), regulatory sandboxes , intellectual property protection, and visa assistance.

However, the legal system is still in its infancy , and concerns have been raised, particularly regarding the protection of intellectual property rights (IPR). When proceeding with an M&A transaction, it is essential to conduct thorough due diligence to ensure that the target company's intellectual property rights are appropriately protected.

2. Market characteristics and growth potential

Uzbekistan's IT services market is growing rapidly and is expected to reach USD 1.88 billion by 2025. Business process outsourcing (BPO) is a key segment, projected to reach USD 685.39 million by 2025.

The overall M&A market is also on a growth trend, with transaction value predicted to reach approximately US$83.67 million in 2025. While this rapid growth in the market represents investment opportunities , it is also expected that competition will intensify, so entry strategies must be carefully considered.

3. Securing and developing human resources

Uzbekistan has a large young population and is characterized by a high level of education in mathematics and science . The government is focusing on developing IT human resources, including promoting the "One Million Coders" program. Approximately 30,000 students graduate each year in IT-related fields, creating a rich talent pool .

However, for international companies to operate locally, the key to success is to combine both personnel familiar with local culture and business practices with global personnel who have international standards and technical know-how . Even after the acquisition, it is important to include in your plan the continued employment of key personnel and investment in improving their skills.

4. Status of the Banking and Financial Sector

Uzbekistan's banking sector remains dominated by state-owned banks , which account for the majority of the industry's assets, deposits, and loans, which may lead to distortions of competition and inefficiencies .

When raising capital for M&A and managing funds after an acquisition, it is necessary to fully understand this financial environment and to closely examine the terms of transactions with local financial institutions and the local services of foreign banks . The government is working to privatize the banking sector and improve transparency, but change will take time.

5. Cultural and linguistic differences

Understanding and respecting local culture and business practices is crucial to the success of your business, including making efforts to build the trust of local consumers and business partners.

Additionally, you should be careful about language, as Russian is widely used as a common language among ethnic groups . Make sure to conduct business and contracts through appropriate interpreters and translators .

6. Political and economic risks

While the government is promoting reforms, regulatory frameworks and policies are subject to change . When planning and implementing an M&A project, be sure to keep abreast of the latest developments in laws and policies and seek advice from local legal experts if necessary.

7. Consideration of environmental issues

Uzbekistan faces serious environmental issues, such as the shrinking of the Aral Sea due to irrigation projects that have been ongoing since the Soviet era, and the excessive use of pesticides in agriculture . These issues could have an impact on the project in the form of concerns about securing water resources and posing health risks to local communities .

When conducting M&A, it is also important to check whether the target company complies with environmental regulations and whether its business activities are exposed to environmental risks.

8. Practical business integration

After the M&A is completed, the following points must be kept in mind in order to successfully integrate the local subsidiary and get the business on track.

• How to delegate to local management : Rather than giving them full authority, it is important to strike a balance by granting them a certain degree of autonomy while establishing key management indicators and a reporting structure.
• Cooperation system with the parent company : We will establish a smooth system for management reporting, technology transfer, personnel exchanges , etc. with the parent company.
• Blending corporate cultures : It is important to recognize the differences in the corporate cultures of the acquiring and acquired companies and to form a new company culture while maintaining mutual respect.

summary

Uzbekistan is rapidly growing as a highly attractive M&A market, particularly in the IT sector, thanks to strong government support and an abundant young talent pool . However, there are also risks, such as an immature legal system, the state of the financial sector, and environmental issues .

The key to successful M&A in Uzbekistan is to seek advice from experts (legal, accounting, and tax) familiar with the local situation at an early stage , to conduct thorough due diligence , and above all, to understand the local culture and business practices and strive to build relationships of trust .