Turkey: Mergers And Acquisitions In Turkey In 2017

Due to the political and economic uncertainties, 2016 was a turbulent year for the Turkish M&A market Local and global political developments, worldwide fluctuation in exchange rates and other economic dynamics affecting the Turkish market caused both the local and foreign investors to take a cautious attitude and reconsider their investment plans before taking any concrete steps for investments. Accordingly, in 2016, total volume of investments had reached its all-time lowest figures in the last seven years. However, following the Turkish constitutional referendum taken place in April 2017, the Turkish M&A market has recovered compared to 2016 and eventually reached to 298 deal number in 2017. Besides, the total transaction volume reached approximately to USD 10.3 billion, marking a 41% increase over 2016.

In 2017, private equity funds actively continued their investments in Turkey. Investments made by venture capitals and angel investors highly contributed to 2017's total deal number, which has been an all-time high in terms of deal number. However, the extreme 41% increase in the transaction value sprung from a few high-volume transactions made by foreign investors that led to such drastic increase.

2017 in Numbers

In January, independent audit and consultancy firms including Deloitte and Ernst&Young published their annual M&A reports setting out their analysis of the 2017 Turkish M&A market. Furthermore, the Turkish Competition Authority published the report on the merger and acquisition transactions notified to the Turkish Competition Authority in 2017 for merger clearance purposes. While there are slight differences among these reports, the overview of the 2017 Turkish M&A market at a glance is as follows:

  • According to Deloitte's report, the total (estimated) value of the 298 deals closed in 2017 was around USD 10.3 billion. Among the total 298 deals, only26 transactions had a deal value over USD 100 million. Transactions with deal value below USD 100 million made up 91% of the total deal numbers in 2017. This indicates that, investments on small and medium-sized enterprises were highly preferred in 2017 like the previous years.
  • Turkish investors completed 228 transactions and the remaining 70 were realised by foreign investors. Accordingly, the ratio between Turkish and foreign investors is 77% to 23%. While the number of transactions involving foreign investors were 93 in 2016, this number decreased to 70 in 2017. On the other hand, following the big decline in the total transaction volume in 2016, the transaction volume realized by foreign investors increased by 45% in 2017 and reached an approximate of USD 5.5 billion, together with the estimations made for the undisclosed transaction values. Although the number of transactions involving foreign investors decreased, there was a substantial increase in the total value of foreign investments realised in Turkey in 2017.
  • In terms of deal value, Dutch, Spanish, Australian, South Korean and Brazilian investors ranked top amongst the foreign investors. In terms of deal number, American, French, Japanese, English and German investors, as well as investors from the United Arab Emirates were the leading investors in 2017.
  • Total deal value of investments made by private equity funds significantly increased in 2017 by reaching to USD 1.2 billion. This was USD 331 million in 2016 (based on Ernst&Young's report).
  • The transaction with the highest deal value in 2017 was the acquisition of OMV Petrol Ofisi by Vitol, the leading energy and commodities company, for a deal value of USD 1.4 billion. According to Deloitte's annual report, this transaction alone constitutes 14% of the total value of transactions closed in 2017. Transfer of operation rights of Menzelet and Kılavuzlu Hydroelectric Power Plants to Entek Elektrik was the largest privatization deal, with a deal value of USD 375 million.
  • Similar to 2016, information and mobile services, technology and energy sectors were the leading sectors both in terms of the deal value and the deal number in 2017. Energy sector, as the most popular sector, dominated the market with 30 transactions, the total deal value of which constitute 28% of the market. Additionally, manufacturing, electronic commerce, food and beverages, health, real estate and finance sectors were among the markets that attracted most investments in 2017.

In 2018, political, economic and social uncertainties may again emerge in Turkey and these uncertainties may certainly affect the Turkish M&A market. However, this should not indicate a negative image towards the future of the Turkish market, as the Turkish market has faced similar challenges before and has remained as an attractive destination both for local and foreign investors. Despite the fluctuation in exchange rates, political uncertainties and sixth time extension of the state of emergency in Turkey, considering the mild recovery in 2017, both the local and foreign investors would still take into consideration the potential in Turkish market and continue their investments in 2018, especially in the information and mobile services, technology and energy sectors.

This article was first published by Dünya Executive.

© Kolcuoğlu Demirkan Koçaklı Attorneys at Law 2017

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