How mergers and acquisitions in Turkey are bucking the trend for cautiousness
According to the Annual Turkish M&A Review 2012, issued by Deloitte, Turkey had a lively M&A environment in 2012 due to its remarkably strong economic performance posted in 2011, while global markets still struggled for recovery. Turkey’s GDP growth rate in 2012 was modest compared with the previous two years, whereas the healthy growth pattern, supported by a dynamic business environment, continued to attract significant interest from investors all over the world, leading to an all-time record number of deals.
Out of 259 transactions in 2012, 103 had a disclosed deal value adding up to US$22.1billion. Considering the estimated value of deals with undisclosed values, the total M&A volume was around US$28billion in 2012. While this represents an 87 per cent year-on-year increase (2011 – US$15billion), it was due to the material contribution of privatisations and a couple of sizeable private-sector deals. Excluding those, the profile of M&A activity was quite similar to 2011 and the majority of the deals occurred in the middle market. With an average post-crisis annual deal volume of US$15billion in private sector transactions, Turkey can be said to be enjoying a consistent level of M&A activity.
Privatisations, after a long period of silence, were back on the scene in the last quarter of 2012 and made up a considerable part of the annual volume, through 19 transactions with a deal value of US$12.1billion, corresponding to 43 per cent of the total deal volume. Privatisation of bridges and highways, which comprised 20 per cent of the total deal value by itself with a deal value of US$5.7billion, was certainly the deal of the year, and the second largest privatisation in Turkey to date. The remainder of the privatisation volume came mainly from sales of energy generation assets and renewed tenders of electricity distribution companies, which had originally been tendered in 2010 but not been closed at that time. The ten largest transactions comprised 75 per cent of the total deal volume (including estimates for undisclosed values) in 2012. Excluding those top 10 deals, the remainder totalled a deal volume of US$7billion, corresponding to an average deal size of around US$28million. Some 214 transactions – each with a value of less than US$50million – accounted for 83 per cent of the total deal number, and represented only 9 per cent of the total deal value.
Foreign investors shared the total deal volume and number almost evenly with local investors, although the latter played a dominant role in privatisations. Foreign investors generated a deal volume of US$13billion (including estimates for undisclosed values), through 119 transactions. Excluding privatisations, the footprint in private-sector deals was again by foreign investors, contributing to 82 per cent of deal volume in the private sector, while local investors had only an 18 per cent share.
With an all-time-high of 57 transactions and a total deal value of around US$1.6billion (including estimates for undisclosed values), financial investors have proved themselves a fundamental part of the Turkish M&A environment. E-commerce, retail, manufacturing and services were the favorites of private equity firms.
As the Turkish M&A environment matures, several secondary sales occurred in 2012. In addition to several private equity exits (Pronet, Doors, Hava?, Ode Yal?t?m and Numarine), there were notable secondary transactions in the financial services (Denizbank, Eurobank Tekfen) and energy and infrastructure sectors.
Despite the patchiness of the global recovery and pessimistic growth prospects, Turkey sustains its positive attributes well above the average. Also, the recent upgrade in the sovereign credit rating to investment grade is expected to improve investor confidence. Continuing investor interest in the Turkish market and fast-growing Turkish companies help us remain positive as regards the outlook for the coming year.
Incentives in Turkey
The Turkish government has been implementing a series of incentives schemes. Over the past decade, it has implemented three incentives programmes – in 2003, 2006 and in 2009 – and announced a fourth for April 2012. These programmes have resulted in a radical transformation of the Turkish economy. The primary objectives of the new scheme are to reduce the current account deficit, boost production and investment for high-import dependent intermediate goods, as well as to increase investment in less-developed regions.
The new system comprises four different schemes: general incentives, regional incentives, incentives for large-scale investments and incentives for strategic investments. More specifically, Turkey offers investors VAT exemption and corporate tax reduction, as well as support for social security premiums, interest payment and land allocation. Under the new system the government will balance levels of local development, particularly by focusing on boosting investment in less developed areas. To maximise the impact, Turkey has been categorised into six regions according to their levels of development. Therefore incentives for investors in less-developed regions will benefit from a larger scope of support. The new system also gives priority to several specific sectors, such as defence, automotive, aerospace and aviation, maritime freight/passenger transportation, pharmaceuticals, education, tourism and mining.
Investment in these sectors will be supported across Turkey by means of incentives provided for Region 5,
the second least-developed region. This new system is expected to contribute to the structural transformation
of Turkey’s industries, particularly through strategic investments, by encouraging domestic production of goods that are commonly imported. The main purpose of the incentives for strategic investments is to promote and support investments in sectors with considerable trade deficit. It is important to highlight that strategic investments will be strongly supported in all regions with the same incentives.