Guest Post: Turkey M&A Outlook

An Overall view of Turkish M&A activities

M&A transactions along with other corporate finance actions such as divestitures, spin-offs, IPOs, corporate bond issuances and seasoned offerings are nowadays as much a talking point among finance professionals in Turkey as in Western economies though this was not the case just some 20 odd years ago when Turkey started to liberalize its markets and started to develop its capital markets. It is an undeniable fact that without a well-developed and structured capital markets one cannot talk about the existence of an effective M&A market so we should start our understanding of Turkish M&A scene with this caveat. For Turkish businesses while the concept of M&A might still be a fairly new idea cross-border partnerships and joint venture business models with a foreign strategic partners has always been at the forefront for Turkish businessmen. Those who started these partnerships early in the 1960’s are now considered biggest conglomerates in Turkey such as Koc Holding (BIST:KCHOL), Sabanci Holding (BIST:SAHOL). So while there has always been a tendency for merging with strong foreign partners in order to grow, the inner dynamics of Turkey stood in the way of a more developed and sustainable M&A market until the last decade or so. And while there is still much more to be done to establish and develop M&A market in Turkey, attitudes are shifting which promotes more globally oriented business models where cross-border fund raising and merging with foreign partners becomes more appealing. Turkish businessmen are now much more aware of the global fund raising capabilities and they see the optionality out there available to them. One could observe this awareness by looking at the M&A deal count of last five years. M&A deals that happened in the past five years also reflect that two common patterns emerge. On one hand we see a handful of big government institutions are being acquired via multibillion dollar privatization deals in sectors such as energy, services, and infrastructure. On the other hand we see numerous transactions ranging anywhere from $10-20 million to an upwards of a $100-300 million range. The number of transactions are considerably higher for the small to mid-market companies, which tells us that SME players are much more active source for M&A activity in Turkey. According to the data gathered from Deloitte’s Annual Turkish M&A Review 2014 average size for the deals completed in the past five years amounts to $82.2 million without excluding big government privatizations. This picture of course should not come as a surprise to people who are familiar with Turkish economy. As an emerging market Turkish companies attractiveness to investors fall largely into somewhere between mid-market to development stage funding both for the domestic and foreign capital providers. Accordingly the M&A transactions are likely to follow this paradigm into the foreseeable future in which venture capital and private equity ecosystems will also grow and help boost M&A activities as well as other corporate finance and investment banking activities.

Expectations for 2015 and Onwards

According to the Deloitte’s Annual Turkish M&A Review 2014 highest number of deals for 2014 was in manufacturing sector with 31 deals with a total disclosed value of $825 million. This gives us an average deal size of $26.6 million for manufacturing. Third most active sector in M&A in 2014 was food & beverage which saw 22 deals with an average deal size of $25.40 million. These figures are reflective of aforementioned facts that Turkish SMEs and middle market players are sought after and they are the main cause for increased activity. One possible explanation for this increased activity is that companies in Turkey are in great need of capital and the M&A market started to offer shareholders an alternative method to public listing as a way to increase capital base and offer an exit strategy for the shareholders. Thus it is expected to have deals continue with slight variations in total numbers yet the total size of these deals might diminish as big government privatizations would not be able to carry on with same impetus. In addition to this foreign and domestic investor appetite for mid-sized companies there is also one other factor that might be attributed to the increased M&A activity. This factor is the demographical change in the ownership structure of Turkish companies. One can expect the bulk of M&A activity to take place among the companies listed in ISO 1000 and generally speaking these companies were founded in 70’s and 80’s which by now matured and established themselves as either public companies or increased their corporate governance via second and third generation family shareholders. And as these mostly family held company’s shareholder’s views started to diverge and differences emerge, M&A activity started to offer an alternative exit strategy for these shareholders. It is reasonable to assume that this tendency would also continue which would add a further momentum to the M&A activities for the upcoming years. In light of the above mentioned assertions we could expect that advisory businesses would also continue to flourish. One important aspect worthy of mentioning is that attitudes will have to adjust to accommodate more delegation of strategic financial planning to the professional M&A advisors whether they are outside advisors or internal advisors.


Ever since Turkey’s economic policies adapted to increase the private sectors weight, along with its capital markets and overall economy the M&A market has also been steadily growing and expanding. And although there still many structural reforms needed to be done for improvement of capital movement between those who seek capital and those who provide it, the M&A market will be playing a crucial role for the intermediation of these movements. Majority of companies in Turkey are still run by sole owners with little access to capital markets or mechanisms such as venture capital and private equity. And the surge of investor activities in the past decade in M&A sector for small to mid-sized companies started to fill the gap for underinvested businesses. These businesses used to rely on traditional commercial banking for many decades. However, the near term future for Turkey’s M&A market looks attractive with many potential cross-border transactions to come, both for Turkish companies to grow internationally and new international entrants to the Turkish markets whether they are pure financial players or strategic investors. The point to be taken here is that many opportunities for M&A deals lay bare in the industrial towns of Turkey where companies strive to export to all corners of the Globe but they cannot have the financial resources as quickly as their Western counterparts. M&A activities along with other investment banking services, to provide necessary financing and capital, are going to be crucial for these companies. The increasing number of activity would most likely to continue in food & beverage, IT, retail, manufacturing ,logistics and transportation sectors and more capital intensive industries such as energy, finance, infrastructure will also experience bigger movements but with limited number of deals.

Private Equity Funds in Turkey: Will We See a Reload ?

Private equity funds are collective investment schemes used for making investments in various equity securities according to one of the investment strategies associated with private equity. They can be can be used to capitalize new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. In the developed countries, they played a fundamental role of bringing together wealthy investors and private companies (especially not traded on a public stock exchange) in need of capital.

In 2000, Turkven Fund launched out into business world, and, concurrently it became the first private equity fund founded in the country. Another success story, Actera Group, which was set up in 2008, made its shining appearance in the market, and has whose assets under management now reached $1.5bn. Up to the present, over 70 private equity funds are on the lookout for profitable opportunities.

Macroeconomic conditions also provide an attractive environment for yield-oriented private equity funds. Following the historical Lehman Brothers’ failure, Turkey constrictedly suffered from the crisis. Moreover, it became the second-fastest growing economy after China with growth rate of 8.8% in 2011. With its economic power, Turkey drew the attention of the funds that are screening emerging markets for investments. Much more that 40 deals completed in 2011 and 2012, but, it looks like the ongoing upside trend line in mergers and acquisitions may be about to finish.

M&A Trend in Turkey - Marketmerger

Comparing to excellent results of 2011 and 2012, the number of deals we saw year-to-date is only 9, according to Marketmerger. As the recovery symptoms in developed world begin to become more clear, we see a sharp decrease in capital inflows towards emerging economies.  As might be expected, this is deteriorating the outlook of the PE market in Turkey. What is more, 2.2% growth rate, $5.8 billion current account deficit, fluctuating currency and the political unrest arising out of both domestic and foreign events are badly influencing the market.

The story of private equity funds in Turkey began perfectly, proceeded distinguishedly, but, recently it entered a rough era with some must-be-faced global challenges. Along with the current temporary inactivity in M&A market, Turkey will be an attractive market for both cross-border and domestic investors.