Turkey: Credit Crunch And Mergers & Acquisitions

Last Updated: 27 October 2014
Article by Murat Tenekecioglu

There is no doubt that credit crunch drives companies and their managements in some degree; depending on 'financial strength' and 'competitive power' in broad terms. Considering each government with public resources and world leading companies are struggling to overcome the negative impacts of global economic crisis, would it be realistic to expect a company management to overcome external shocks occurred due to credit crunch? Can any management know how deep and to which extends and/or how long time take the global economic crisis is? When would the deflation period turn into inflationary period? How technological developments, change in foreign exchange rates and competition would create threats and opportunities for the companies? At least, we expect the management would estimate all rationally, but rational estimation does not necessarily mean to a realistic one.

The Turkish banking sector was re-structured in the period of 1999-2001, and the tax payers paid for those years ago. In addition to this, since the cost of work-forces is relatively low, and obligations of environmental investments are flexible in Turkey, those would be advantageous of the Turkish companies. However, the costs of energy, finance and transportation are still high, and also the costs of raw materials and semi-finished goods imported to the Turkish industry are increased due to devaluation of TL, which was devalued about 30% in the last six month period. Moreover, devaluation of TL also means to gain power of competition in the international markets, but it is not so easy to compete with cheap Far-East products, while other countries are also devaluating their national money, and trade volume of the world is declining.

Reduce in consumer credits, sales with instalment plans and income and confidence of consumers have been caused initially to decline in demand for consumer goods and retails, then to change in consumer behaviours and preferences. That hits shopping malls, supermarkets and entertainment sector, wholesalers and manufacturers within the same chain. Declining profit margins, increasing sales and promotional sales, or marketing via advertisement would not beat weakened purchasing power and confidence of consumers. Due to the same reasons, consumer products and retail sector have been followed by automotive industry, mass housing projects and markets as well as sub-sectors within the same supply chain of raw materials, finished or semi finished goods. The rates of capacity usage and production levels sharply reduced in the industry.

The companies are threatened by external shocks and 'domino effect' of the global economic crises as well as their structural weaknesses. The combined negative impacts are felt slowly over time, but initially hit small and medium sized companies, and others which have lack of working capital and/or competition power in the markets. The negative impacts of the global crisis and structural weaknessess are seen on the capacity and the capability of purchasing, supplying, production, collection, payment, employment, competition, profitability, cash stocks and credibility of the companies. Therefore, a strong re-structuring trend should be expected in almost all of the industries and sectors so that would be end of individual firms and traditional companies.

All of the managements are talking and discussing about the same external problems and their different internal effects. Therefore they are seeking for the best strategic policies and solutions appropriate with the specific needs and priorities of their companies. We also see some optimistic managers and companies not seeing, thinking or expecting a serious crisis impact for the Turkish market and companies. They are talking about transforming negative effects of the credit crunch of international markets into an advantage for their companies. Of course time is the best judge, but wasted time never comes-back. Also, the method for learning via trying or wasting time would be more costly, especially in economic crisis periods.

The most common management policies against negative impacts of global economic crisis would be:

  • increasing working capital,
  • redundancy,
  • saving on general management expenses, production, marketing and R&D costs,
  • putting in the pipe line expenses for environmental and social corporate responsibility projects,
  • temporary ceasing operations,
  • stopping new investments,
  • adjusting inventories and capacity usage,
  • re-structuring debts and credits,
  • reviewing contracts and commitments,
  • process improvements,
  • increasing productivity via economic, efficient and effectiveness of the operations,
  • maximisation of governmental grants.

The number of the companies faced with risks and threats is increasing over time. Some of the world leading companies are struggling to survive. If the world feels worse, you would not feel better among the market bubbles, even though it is a 'zero-sum game.' Macro-economic and micro-economic environment of the companies are changing dramatically. Therefore, the main problem for the companies, shareholders and the managers is adapting, making and applying decisions accurately in such a changing risky environment. The managers know that having an accurate road-map of global economic crisis is a vital issue. It is obvious that a wrongful road-map or wrongful positioning the company on an accurate road-map would be more costly.

Since financial strengths, competition powers and market positions differs from company to company, their responds to the impacts of global economic crisis in the short-run, mid and long run should also be differ from each others.

We expect more and more mergers and acquisitions all around the world due to global economic crisis. M&A would be an opportunity for the companies with their own reasonable brands and quality policies accredited internationally in such a world that governments and G-20 countries are also in joint efforts to overcome threatening impacts of the global economic crisis.

Optimal timing remains as the crucial issue for M&A cases at the period of economic crisis, since the same opportunity never knocks on your door twice!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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