Private M&A

Private M&A transactions are commonly structured as:

• asset purchases;
• share purchases; and
• mergers.

Each structure type has its own characteristics, advantages and disadvantages, which can be summarised as follows.

An asset purchase involves the buyer acquiring specific assets and liabilities of a target, rather than acquiring the business as a whole. This structure provides the distinct advantage of selective acquisition, allowing buyers to choose which assets and liabilities to acquire and thus to exercise greater control over the transaction. In addition, it limits the assumption of undisclosed liabilities, which can help to mitigate potential risks for the buyer.

On the other hand, with share purchase, the buyer acquires shares in the target, resulting in the acquisition of the entire entity along with all assets and liabilities. This simplifies the transfer process by retaining essential contracts and relationships with customers and employees. The structure enables the seamless transition of operations but may expose the buyer to inherited liabilities, including potential debts and legal complications, that could pose significant risks.

Lastly, mergers represent a more integrated approach, involving the combination of two or more companies into a single corporate entity. This process is often aimed at:

• enhancing competitive strength;
• increasing market share; or
• achieving operational efficiencies.

However, mergers may also have significant downsides, including:

• challenges in merging company cultures;
• possible regulatory issues;
• hidden liabilities;
• increased complexity in operations; and
• the risk of losing key employees.

The decision on transaction structure in Türkiye involves an assessment of various factors such as:

• tax considerations;
• liability exposure;
• transaction costs; and
• regulatory requirements.

Additionally, the strategic objectives of both parties – especially regarding post-deal involvement – contribute to the choice of transaction structure.

In an auction structure involving multiple bidders, the following key phases and considerations should be borne in mind by the parties:

• identification of potential bidders;
• execution of non-disclosure agreements and auction process letters, which should set out:
• • the timeline and rules of the auction;
  • the negotiation terms; and
  • confidentiality, non-compete and non-solicitation obligations of the bidders;
• provision of information memorandums to bidders. Depending on the deal structure, vendor due diligence reports may also be provided or bidders may be allowed access to virtual data rooms for due diligence. The documents and information provided should allow bidders to establish a proper value of the target and commercial terms of the transaction documents;
• the submission of binding offers by the bidders;
• negotiations with shortlisted bidders or exclusive negotiations with one preferred bidder after consideration of the binding offers by the seller;
• negotiation of the transaction agreements, which are usually prepared by the seller. During the negotiation phase, the parties should bear in mind that:
• • the seller usually chooses an auction process in order to maximise value and obtain competitive offers on the purchase price and commercial terms; and
  • the buyer may request exclusivity requirements and broad conditions precedent, representations and warranties, and indemnifications. In this respect, the parties are encouraged to strike a balance to ensure a successful transaction; and
• signing of the transaction documents and closing of the transaction.

The initial preparatory stage usually begins with the signing of a non-disclosure agreement, which aims to protect the confidentiality of sensitive information that may be shared between the parties during discussions and due diligence. Additionally, a letter of intent, memorandum of understanding or term sheet is signed between the parties which outlines the preliminary terms and conditions agreed upon by both parties, including:

• the intended purchase price;
• the structure of the transaction; and
• other main terms, such as exclusivity periods.

While such documents may not be legally binding in their entirety, they demonstrate the parties’ commitment to proceed and often lay the groundwork for future negotiations.

During the initial preparatory stage of an M&A transaction, the following parties are typically involved:

• senior management and the boards of directors of the parties;
• external advisers such as:
• • legal, financial and tax advisers;
  • corporate counsel; and
  • M&A advisers; and
• relevant industry specialists or consultants engaged to:
• • provide market insights; and
  • assist with valuation.

The seller is permitted to pay adviser costs without any restrictions. The prohibition on financial assistance under Turkish law primarily concerns situations where a target provides support for the acquisition of its own shares, as explained in question 7.7.

The most common types of due diligence conducted in private M&A transactions in Türkiye are:

• legal;
• financial;
• tax;
• operational;
• human resources;
• environmental; and
• technical.

The types and scope of the relevant due diligence will depend on:

• the deal structure;
• the nature of the transaction;
• the profile of the parties; and
• the business, size and assets of the target.

Due diligence exercises are usually performed through virtual data rooms set up by the seller and the target further to the buyer’s list of document and information requests. Data rooms also allow questions to be asked and answered by the respective parties and their counsel. Depending on the necessity, on-site inspections may be conducted – usually with respect to operational, environmental and technical matters.

The following main topics are generally reviewed in legal due diligence exercises:

• organisation, structure and corporate documents and records;
• related-party transactions;
• material contracts;
• financing arrangements;
• litigation and arbitration;
• real estate;
• movable assets;
• licences and regulatory compliance;
• environmental matters;
• labour and employment;
• intellectual property;
• information technology;
• data privacy;
• cybersecurity;
• insurance; and
• other sector and business-specific matters.

The participants should consider the following factors during the due diligence phase:

• Scope and timing of the due diligence exercise: Parties are advised to plan ahead and determine the scope, extensiveness and timing of the due diligence, including by considering the specifics of the deal, to ensure a smooth process. For example, setting a materiality threshold, a deadline and terms of extension could align the parties’ interests during the due diligence.
• Confidentiality: A non-disclosure agreement should be executed between the parties prior to the due diligence process to protect confidential and sensitive information.
• Competition concerns: In order to comply with applicable competition regulations and protection of trade secrets:
• • certain information may be redacted from the documents; and
  • clean-team agreements may be executed between the parties.
• Data privacy: Parties should ensure compliance with applicable data privacy regulations, including on the processing and transfer of personal data, to the extent that documents and information contain personal data.
• Timely and accurate uploading of documents to the data room: Parties should take the necessary measures to ensure that only relevant documents and information are uploaded to the correct folders in a timely manner for the conduct of a smooth due diligence process.
• Effective communication: Parties are encouraged to establish effective communication between their counsel and with the target’s team.

Environmental, social and governance (ESG) matters are emerging in private M&A transactions in Türkiye. In this respect, legal due diligence with respect to ESG issues is tailored to the target’s sector and business activities in such areas and regularly covers the following:

• compliance with environmental regulations, including environmental permits and licences, and review of regulatory and corporate documents of the target, such as those relating to pollution, contamination, waste and emissions;
• compliance with laws and regulations regarding labour, employment, occupational health and safety, such as:
• • employment practices;
  • working conditions;
  • workplace health and safety; and
  • non-discrimination;
• compliance with data privacy legislation;
• compliance with anti-money laundering and anti-bribery laws and regulations;
• review of policies and corporate documents related to the above matters;
• actual and threatened investigations, penalties, administrative processes and litigation; and
• communications with the relevant regulatory authorities related to the above matters.

Corporate approvals: In joint stock companies (JSCs), in principle, shares may be freely transferred. However, share transfer restrictions may be imposed under the articles of association (AoA) of a JSC by way of requiring board approval.

In limited companies (LCs), unless otherwise provided in the AoA, share transfers must be approved by the general assembly and registered before the trade registry. Share transfer restrictions may also be imposed under the AoA – for example, by way of corporate approvals, pre-emptive or option rights.

In both JSCs and LCs, share transfers may be subject to corporate approvals or option rights contractually – for example, by way of shareholders’ agreements.

Board and general assembly resolutions approving the share transfer are adopted as part of the closing structure.

Please also see question 8.3 regarding the formalities of the share transfer transaction.

A merger transaction requires a merger agreement executed by the boards and approved by the general assemblies of the merging parties. If the merger transaction is conducted through a simplified merger procedure, a board resolution is sufficient instead of general assembly approval.

Regulatory approvals: In principle, private M&A transactions are not subject to regulatory approvals in Türkiye, save for:

• a competition clearance requirement, if applicable (please see question 9); and
• sector-specific exceptions.

It may also be the case that a notification must be made to a relevant regulatory authority following closing of the transaction, depending on the relevant sector.

In principle, foreign investors are subject to the same treatment as national investors and are free to make direct investments in Türkiye. In this respect, foreign investors are required only to make foreign direct investment notifications to the relevant authority about their investments, including share deals, via an online platform for statistical purposes. Other than the foregoing, unless otherwise stipulated by law, there are no restrictions on foreign ownership.

Certain foreign ownership restrictions may apply in specific sectors due to public policy rules. Such sectors include, without limitation:

• civil aviation;
• media;
• electricity; and
• transportation.

There may also be certain restrictions on foreign ownership of real estate depending on the nature of the investor and the real estate, such as restricted military land.

Parties should:

• diligently assess the requirement for regulatory approvals during the due diligence phase; and
• consider the same concurrently with the drafting and negotiation of the transaction documents.

It is important for the parties to timely organise and make such applications to the regulatory authorities, as:

• closing of the deal may require such regulatory approvals as a condition precedent in the transaction documents; and
• the evaluation and approval process may take a significant amount of time.

Regulatory approvals will also require effective and prompt communication and sharing of information between the parties during the application and evaluation process.

With respect to corporate approvals, parties should carefully evaluate the required documents during both the due diligence and transaction document phases by taking into account:

• the transaction structure; and
• applicable laws and regulations.

Such documents should be drafted in coordination with and agreed upon by the parties, bearing in mind any validity requirements, to ensure a smooth process overall. Certain corporate documents may need other documents and/or procedures in order to be finalised. These may include:

• powers of attorneys, declarations and other documentation, which may require notarisation and apostille abroad;

• signing and delivery of documents; and
• prior arrangements for convocation of general assemblies.

As such processes impact on the timing of closing, it is important that the parties plan ahead of time and take swift action accordingly.

The documents that are typically drafted and entered into between the parties for a private M&A transaction in Türkiye are as follows:

• non-disclosure agreement (NDA);
• letter of intent (LOI);
• memorandum of understanding (MOU);
• term sheet;
• share purchase agreement (SPA);
• shareholders’ agreements; and
• corporate documents.

Depending on the deal and transaction structure, the following, among others, may also be applicable:

• share subscription agreement;
• asset purchase agreement;
• merger agreement;
• joint venture agreement; and
• escrow agreement.

Transaction documents are more frequently than not drafted by the buyer; however, there is no specific rule or established market practice on which party drafts the documents. Therefore, in Turkish private M&A deals, both the buyer and seller may draft the documents.

As the preliminary documents to an M&A transaction, the NDA, LOI, MOU and term sheet usually address the following key matters:

• general deal structure and commercial terms;
• confidentiality;
• exclusivity;
• the binding or non-binding nature of the agreement or certain clauses;
• due diligence; and
• governing law and dispute resolution.

Focusing on the main transaction document, the following matters are covered under the SPA:

• the purchase price and payment;
• conditions precedent;
• interim period and covenants;
• closing actions;
• post-closing actions;
• representation and warranties;
• material adverse change;
• indemnities;
• limitation of liability;
• confidentiality, non-compete and non-solicitation;
• governing law and dispute resolution; and
• exhibits and disclosures.

Certain corporate documents for the closing of the transaction are also prepared.

If the transaction structure does not include the sale and purchase of the entire share capital, a shareholders’ agreement may be executed, which will mainly regulate the following:

• shareholding structure and share groups;
• privileged shares;
• corporate governance issues, including:
• • board composition;
  • meeting and decision quorums;
  • reserved matters in board and general assembly resolutions;
  • veto rights;
  • funding;
  • capital increases and dilution of shares; and
  • distribution of dividends;
• operation and management of the company;
• reporting requirements and access to information;
• deadlock;
• share transfer restrictions;
• option rights, such as right of first refusal, call option, put option, drag-along and tag-along rights;
• non-compete and non-solicitation clauses; and
• governing law and dispute resolution.

Under Turkish law, parties enjoy freedom of choice of law where a foreign element is present in the transaction. In this respect, parties may choose a foreign law to govern the transaction documents. However, in any event, Turkish laws will specifically apply if:

• the chosen foreign law explicitly contradicts Turkish public policy rules; or
• there are mandatory Turkish law provisions that are directly applicable.

In practice, parties choose the governing law by taking into account:

• the nationality and profile of the parties;
• the deal structure;
• the nature of the transaction; and
• mandatory provisions applicable to the target, such as:
• • corporate governance;
  • formalities applicable to share transfers; and
  • shareholders’ rights.

In this respect, in the Turkish M&A environment, Turkish law is increasingly being chosen as the governing law where the target is a Turkish legal entity. However, depending on the parties and the deal structure, English law, Swiss law, German law and French law are frequently chosen as preferred governing laws.

The representations and warranties that are typically included in the transaction documents include:

• the authority and legal capacity to enter into the agreement and fulfil their obligations;
• ownership of shares;
• company records, including articles of association, board resolutions and other essential legal documents;
• the company’s accounts and financial statements;
• the company’s unpaid loans, debt obligations or guarantees;
• the assets, real estate and intellectual property of the company;
• powers of attorney granted by the company;
• the company’s compliance with its contractual and regulatory obligations; and
• legal disputes or investigations in which the company is involved.

A buyer may seek a specific indemnity under various circumstances, particularly when there are potential risks that could materially affect the value or operations of the business. Each transaction is unique and indemnities must be tailored to the findings of the due diligence and the specific circumstances of the deal. Typical scenarios include:

• outstanding tax obligations or potential tax audits;
• ongoing or potential legal claims or disputes;
• undisclosed liabilities of the seller;
• issues concerning the ownership or protection of intellectual property; and
• employee-related matters such as:
• • employee receivables;
  • severance or pension liabilities; or
  • claims of unfair treatment.

In Türkiye, the remedies available in case of breach of contract are primarily governed by the Code of Obligations. The non-breaching party may claim:

• specific performance, if possible, unless the transaction documents explicitly exclude it;
• compensation for damages;
• termination; and/or
• indemnity for specific risks, such as undisclosed liabilities or warranties, which were breached, in line with the relevant provisions of the transaction documents.

The statutory timeframe for bringing a claim under Turkish law varies depending on the type of breach:

• Under the Code of Obligations, unless otherwise provided by law, every claim is subject to a 10-year statute of limitations.
• In the case of sales, if a defect in the purchased asset is discovered, the statute of limitations is typically two years from discovery of the defect. However, in case of gross fault or negligence, the seller cannot benefit from the two-year statute of limitations.
• In case of breaches related to warranties or representations, the typical timeframe to raise a claim may vary depending on the transaction documents.

In M&A transactions in Türkiye, limitations to liability are commonly included in the transaction documents to manage risks and provide clarity on the scope of obligations. These limitations typically apply to representations, warranties and specific indemnities, and can include the following:

• a cap on liability, setting a maximum cap on the seller’s liability for breaches of representations and warranties;
• a timeframe determined by the parties for bringing claims for breaches of representations and warranties;
• certain types of liabilities which may be carved out from liability limitations; and
• caps, time limits or other negotiated exclusions applicable to specific indemnities, such as:
• • only covering direct losses; or
  • excluding indirect or consequential damages.

Additionally, the seller’s liability for breaches of representations and warranties is often limited by its knowledge at the time of signing or closing.

In Türkiye, the Communiqué on Insurance Branches:

• divides insurance into life and non-life groups; and
• lists the relevant branches under each group.

Currently, warranty and indemnity insurance is not explicitly listed as an insurance branch. For this reason, insurance companies generally do not provide policies in this area. As a result, even though the trend towards seeking warranty and indemnity insurance in the Turkish M&A market is growing, warranty and indemnity insurance is not yet common in Turkish private M&A deals.

The usual approaches include the following:

• The buyer may place a predetermined amount of money in an escrow account held by a neutral third party, such as a bank or an escrow agent;
• A portion of the purchase price may be deferred and paid to the seller after a specified period only if no claims arise;
• The seller may provide a bank guarantee letter covering potential liabilities;
• The seller may provide a guarantee letter from its parent company or another financially strong affiliate covering potential liabilities; or
• The seller may provide a personal guarantee letter from a key individual.

Buyers in Türkiye often include restrictive covenants in transaction documents to protect the value of the target. The most common restrictive covenants include:

• non-compete clauses, whose enforceability will depend on:
• • duration;
  • geographical scope; and
  • business sector;
• clauses on non-solicitation of customers, suppliers or employees; and
• confidentiality obligations.

The Turkish courts will enforce restrictive covenants only if they:

• are proportionate; and
• protect a legitimate business interest.

Accordingly, overly broad geographic scopes or excessive timeframes (ie, more than two to three years) may lead to partial or full invalidation.

In private M&A transactions in Türkiye, it is common to include conditions to closing when there is a gap between signing and closing. The most typical closing conditions include:

• a no MAC clause, which allows the buyer to walk away if an event occurs that materially affects the business, financial condition or operations of the target before closing;
• bring-down of warranties that are given at the time of signing;
• third-party approvals for the transfer of the agreement or for change of control clauses under agreements; and
• if required, regulatory approvals from the Competition Authority and other sector-specific approvals where necessary (eg, in the banking and energy sectors).

In addition to the closing conditions outlined under question 6.8, other conditions precedent typically set out in the transaction documents in Türkiye include:

• provision of documentation for approvals from third parties and regulatory bodies;
• delivery of resignation letters from required directors, managers or other key personnel;
• completion of any carve-outs;
• the parties’ entry into and/or termination of agreements within the scope of the transaction structure;
• provision of certificates from applicable governmental authorities that the target has no tax or social security debt; and
• any actions and transactions required to be performed as identified in the due diligence phase.

This varies depending on:

• the size of the deal;
• costs such as taxes; and
• the financial ability, resources and financing preferences of the buyer.

In Türkiye, the most common types of consideration in M&A deals include:

• cash;
• shares; or
• a combination of both.

Earn-outs may also be used as consideration where part of the payment is contingent on future performance.

Another common consideration is participation in the target’s share capital. This can occur by contributing to the share capital during a capital increase, where other shareholders do not contribute fully – or at all – thus allowing the buyer to enter as a shareholder without an actual share transfer while altering the shareholding structure and ratios. Alternatively, share capital may be increased with a share premium, which injects working capital into the company or covers losses without increasing its liability towards shareholders. These methods are also commonly used by startups and their investors.

Cash payment is an instant method that is liquid and provides for a more consistent value in comparison to consideration in stock. Stock-based consideration, while aligning the seller’s interests with the long-term success of the buyer, may introduce market risk and potential valuation issues. Ultimately, the advantages and disadvantages of various types of consideration are subjective to each deal and its circumstances.

This choice is commonly affected by the total cost and value of the transaction over the strategic terms defined by the parties in consideration of their cash flow and financial strength. The parties will analyse the risks and benefits based on their actual financial requirements in determination of the consideration.

As the operations and obligations of companies are not suspended or put on hold during the interim period of the M&A transaction, the valuation and fiscal burdens of the target are subject to variation.

The locked-box method relies on financial statements as of a specified date to determine the final purchase price, with the share purchase agreement including clauses that prevent leakage and set compensation mechanisms to address any adverse effects on valuation.

Completion accounts determine an initial purchase price based on financial statements from a specific date, with subsequent adjustments made according to differences reflected in the completion accounts.

In this regard, both completion accounts and locked-box structures are widely utilised in private M&A transactions in Türkiye.

Whereas in many deals the price is paid in full at closing, deferred payments are also common. These may take the form of:

• earn-outs based on the target’s performance;
• instalments spread over a specified period; or
• escrow payments that protect both parties by holding a portion of the funds until certain conditions are met.

Also, as provided under question 7.1, acquiring shareholdings through capital contributions is a common method used by investors, particularly in recent years, as startup investments increasingly take the form of capital injections.

In Turkish M&A deals, sellers using deferred or earn-out payments seek protective measures to ensure both timely payment and its fair determination. They may secure management rights and post-completion veto powers to:

• maintain sufficient control over company operations; and
• block major decisions – such as significant changes in strategy or capital structure or the sale of assets – that could negatively impact the earn-out calculation.

Additionally, sellers may require detailed reporting, audit provisions and operational covenants to monitor performance and guarantee that the business operates as expected. To further safeguard deferred payments, escrow arrangements are commonly incorporated, along with adjustment clauses to address any deviations from the agreed performance targets.

Pursuant to Article 380 of the Turkish Commercial Code, any legal transaction of a Turkish joint stock company (JSC) with the subject matter of the provision of an advance, loan or security for the purpose of the acquisition of its own shares by a third party shall be null and void. As such, any legal transaction entered into by a Turkish JSC to provide financing for, or to grant security in relation to the financings to be procured for, the acquisition of the respective Turkish company’s shares by a third party shall be null and void.

Nevertheless, this provision does not apply to legal transactions related to advances, loans or collateral provided to enable the company or its affiliates’ employees to acquire the company’s shares or operations within the business activities of credit and financial institutions, to the extent that such activities will not have adverse effects on the legal reserves and the capacity of the company to allocate the legal reserves.

The parties to an M&A deal in Türkiye should bear in mind the securing of financing at all times. Whether the payment mechanism is structured in the deal as cash in full, deferred payments or an investment by means of capital contribution, the parties may benefit from appropriate guarantees such as:

• personal or bank guarantees; or
• as is commonly utilised, escrow for holding cash deposits.

Such measures assure:

• the indemnification or adjustments to the final purchase price in the event that representations and warranties or any other obligation of the parties are not met; or
• amounts that are or may become due based on the financing considerations or price adjustments.

Typically, deals in Türkiye commence with the buyer’s initial approach to the target, effected through commercial relationships, advisers or direct approaches to the shareholders of the target and/or targets.

The key milestones are as follows:

• the preparatory phase, in which:
• • the seller may provide initial information on the target to potential buyers; and
  • those potential buyers will conduct preliminary due diligence;
• initial approach/indicative offers and negotiation and signing of the letter of intent/memorandum of understanding/term sheet;
• conduct of due diligence by the advisers of the seller, including legal, financial, tax, intellectual property and other important fields relating to the operations of the target;
• negotiations of:
• • the share purchase agreement (SPA) to define the legal and financial terms of the deal; and
  • the shareholders’ agreements in deals where the sell side will remain as shareholders in the target;
• signing of the SPA and shareholders’ agreements (where applicable);
• completion of conditions precedent, such as:
• • merger/competition authority clearance (where required); and
  • other administrative permissions and/or approvals for the anticipated transaction; and
• closing, on which:
• • the transfer of shares or assets is completed;
  • the purchase price is paid (if applicable); and
  • the final documentation is executed.

The typical documents signed and executed on closing are primarily corporate resolutions and other documentation needed for closing. Examples include the following:

• resolutions on the share transfer and the adoption/approval thereof, with the inclusion of the registration of the change in shareholding in the share ledger;
• resolutions on the anticipated changes in the target upon closing, regardless of whether they are subject to registration before the chamber of commerce, such as:
• • the articles of association; and
  • directives pertaining to:
  • • the management and representation of the company;
    • board members and representatives;
    • capital increases/decreases; and
    • merger and/or demerger (if relevant);
• personal documents of the new board members and representatives, such as signature and duty acceptance declarations; and
• any other document that may be required based on:
• • the nature of the deal; and
  • the closing requirements

The closing usually takes place at the offices of the target. However, other common locations for closing include:

• the offices of the parties’ advisers; and
• conference rooms to conveniently accommodate the group of persons involved in the deal (eg, advisers, shareholders, directors).

In certain cases where the deal involves a cross-border transaction, closing may take place at the place of the corporate headquarters outside Türkiye. In such case, the advisers of the parties will generally meet at the Turkish subsidiary/company of the target or at the offices of one of the advisers to complete any necessary closing actions relevant to the Turkish jurisdiction.

Share transfers in Türkiye vary depending on the corporate structure of the target. Here, we focus on two of the most common company types in Türkiye for an overview of the transfer of shares to the buyer by the seller:

Joint stock company (JSC): If a JSC has not issued share certificates, share transfers must be performed by a written transfer agreement between the parties. Bearer share certificates are transferred by way of delivery of the share certificates. The share transfer will become effective once notified to the Central Registry Agency by the buyer.

Registered share certificates are transferred by endorsement and delivery of the share certificates to the buyer.

The share transfer and the relevant changes are then registered in the share ledger of the target by means of resolution of the board of directors;

Limited companies (LCs): In LCs, share transfers must be made via a written share transfer agreement that is signed by the parties and notarised before a Turkish notary public. In addition, unless otherwise provided in the articles of association of the LC, share transfers must be approved by a resolution of the general assembly of shareholders, which must then be notified by the target to the Trade Registry. The share transfer is also subject to registration by the trade registry and announcement in the Trade Registry Gazette.

Parties must fulfil the actions for which they are responsible – that is:

• conducting prudent due diligence, for the buyer; and
• providing accurate data that is not misleading and indicative of the actual status of the target, for the seller.

The provision of misleading information by the seller will lead to a number of liabilities in terms of civil law.

These obligations of the parties are included within the transaction documentation (ie, the SPA). The representations and warranties, as well as indemnifications under the SPA, are commonly drawn to include:

• the representations of the parties in relation to these obligations; and
• indemnifications for any potential occasion which any of the parties is in violation thereof.

Any misleading information provided under this documentation or led by the seller to shape this documentation will result in a defect on the part of the seller under the transaction documentation and the Code of Obligations.

Another liability that may arise due to the provision of misleading information by the seller is fraud under the Penal Code. However, the criminal liability under the code is exceptional: to arise, the seller must have deceived the buyer with the misleading information in order to take advantage of the buyer to afford a benefit for themselves or a third party. Not all misleading information provided by the seller or its advisers will necessarily constitute fraud and the obligation of all parties to act as a prudent merchant is reserved.

The typical post-closing steps of a M&A transaction in Türkiye are as follows:

• registration of the transaction before the relevant trade registry directorate, including but not limited to:
• • amendment of the articles of association;
  • formation of the board of directors/managers; and
  • appointment of board members and representatives;
• notification and registration of the change in shareholding as per Articles 198 (notification on changes in certain shareholding ratios) and 338 (notification on change of shareholding status between sole or more than one shareholder) of the Turkish Commercial Code (by any means required for the type of the company) before the relevant Trade Registry directorate;
• where there is a foreign shareholding, submission of an Elektronik Teşvik Uygulama ve Yabancı Sermaye Bilgi Sistemi notification regarding the share transfer to the General Directorate of Incentive Implementation and Foreign Investment;
• procurement of an ultimate beneficial ownership notification in accordance with the Tax Procedural Code (General Communiqué 529);
• any other notification or submission to public and private institutions that is required in relation to the company and its activities;
• valuation of the company and drafting of reports by financial and tax advisers (generally carried out in transactions with post-closing price adjustments);
• internal structuring and organisational restructuring of the company;
• implementation of operational systems, such as IT systems and processes; and
• alignment of the acquired company with the buyer’s strategy and operating procedures, as well as rebranding and marketing.

The applicable turnover thresholds for a transaction to be subject to a mandatory merger control filing in Türkiye pursuant to Article 7/1 of Communiqué 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board are as follows:

• The aggregate Turkish turnover of the transaction parties exceeds TRY 750 million and the Turkish turnover of at least two transaction parties individually exceeds TRY 250 million; or
• either:
• • the Turkish turnover of the transferred assets or businesses in acquisitions exceeds TRY 250 million and the worldwide turnover of at least one of the other parties to the transaction exceeds TRY 3 billion; or
  • the Turkish turnover of any of the parties in mergers exceeds TRY 250 million and the worldwide turnover of at least one of the other parties to the transaction exceeds TRY 3 billion.

It will suffice for a transaction to be subject to a mandatory notification requirement if one of these two alternative jurisdictional turnover thresholds is satisfied.

In addition, Communiqué 2010/4 provides that the TRY 250 million Turkish turnover thresholds mentioned above will not apply to acquired undertakings if:

• they are active in the following fields:
• • digital platforms;
  • software or gaming software;
  • financial technologies;
  • biotechnology;
  • pharmacology;
  • agricultural chemicals;
  • health technologies; or
  • assets related to these fields; and
• they:
• • operate in the Turkish geographical market;
  • conduct research and development activities in the Turkish geographical market; or
  • provide services to Turkish users.

According to Article 11 of Law 4054 on the Protection of Competition, if a merger or acquisition that requires notification is not notified to the Competition Board, the Competition Board will review it upon discovery and take the following action:

• If the transaction does not significantly restrict competition in the market, the Competition Board will approve it but impose a fine for failure to notify; or
• If the transaction significantly restricts competition in the market, the Competition Board will not only impose a fine but also:
• • terminate the transaction;
  • reverse any unlawful actions;
  • require the return or transfer of shares/assets;
  • restrict management participation for transferees; and
  • take other necessary measures.

If a transaction that is subject to clearance of the Competition Board is carried out without the clearance of the Competition Board, the board will impose an administrative fine in the amount of one-thousandth of the annual gross revenues of the undertaking at the end of the previous fiscal year.

There is no mandatory employee consultation requirement for private M&A transactions in Türkiye. If the legal entity employing the employees remains unchanged, a transfer of employment relationships is not required. However, in case of a change in the employing legal entity due to an M&A transaction (ie, transfer of a commercial enterprise), employees have the right to object to the transfer of their employment relationships. Accordingly, employees should be duly notified of the transaction to enable them to exercise their right of objection.

If the legal entity employing the workforce remains unchanged, the employees will not be transferred to a new entity. However, if there is a change in the employing legal entity in a merger, an employee:

• may object to the transfer; and
• has the right not to continue the employment relationship after the merger.

If the employee objects to the transfer, the employment relationship will continue until the end of the legal notice period.

If the employee does not object to the transfer, the employment relationship will continue in the merged entity with all its rights and obligations. Since there is a complete transfer in case of a merger, the transferee employer will be responsible for all employment receivables, including the receivables arising during the period of the previous entity.

However, for the employer, the merger cannot be claimed as a sole ground for termination of the employment relationship.

In non-merger cases where there is a transfer of a commercial enterprise, the employment relationships will automatically transfer to the buyer along with all rights and obligations.

If the legal entity employing the workforce remains unchanged after a private M&A transaction, employees’ rights and obligations generally remain unaffected. However, the following should be borne in mind:

• In case of transfer of a commercial enterprise, all existing employment agreements automatically transfer with their rights and obligations intact. Employees cannot be dismissed solely due to the transfer.
• If the transaction leads to redundancies or restructuring, employees may be entitled to severance pay and notice periods.
• If employees are covered by a collective bargaining agreement, the new employer is generally required to adhere to its terms until its expiration.
• In cases where a workplace has a union presence, consultation obligations may arise, particularly if changes in working conditions or mass terminations are anticipated.
• Any modification to employment agreements due to the transaction requires employee consent, ensuring that workers are not unilaterally disadvantaged.

In Türkiye, the obligatory state pension system is administered by the Social Security Institution, which collects insurance contributions from both employees and employers. Additionally, there is a voluntary private pension system, in which employees may choose to participate. The following provisions pertain to the obligatory state pension system.

If the legal entity employing the workforce remains unchanged, the pension scheme continues without modification. However, if there is a change in the employing legal entity, the seller’s pension obligations transfer to the buyer along with the employment agreements. In cases involving the transfer of a commercial enterprise, the buyer and seller bear joint liability for any social security debts that arose before the transaction and were due for payment as of the transaction date. The seller’s liability for such debts is limited to two years from the transaction date.

During the due diligence review, all employment agreements, together with service, consultancy and contractor agreements, should be assessed to determine whether relevant individuals have been properly classified. A consultant or a contractor might be identified as an employee if they function as an employee – for example, by:

• working under the direct control of the seller;
• receiving fixed salary from the seller; or
• working exclusively for the seller.

Further, whether directors have dual roles (as both employees and board members) should be checked, as this may impact benefits and termination rights.

If misclassification risks are identified, corrective actions – such as reclassifying workers or adjusting contract terms – should be taken before closing. Buyers should also include warranties and indemnities in transaction agreements to protect against past liabilities.

Even where the legal entity employing the workforce remains unchanged, a protocol between the transferee, the transferor and transferred employees may be executed to mitigate potential future disputes or claims. Furthermore, if the buyer decides not to retain certain employees after the transaction, the employing entity must enter into agreements with the affected employees before their dismissal.

Lastly, ensuring a seamless transition for employees after the transaction is crucial for business continuity. Clear communication and well-structured integration planning help to minimise disruptions and sustain productivity.

The main statute covering data protection in Türkiye is the Personal Data Protection Law (6698/2016) (PDPL).

Where one of the data processing conditions is not available, explicit consent must be obtained from the data subjects whose personal data will be processed. ‘Explicit consent’ means freely given, specific and informed consent.

Under the PDPL:

• personal data shall be erased, destructed or anonymised by the data controller, ex officio or on the request of the data subject, in the event that the reasons for the processing no longer exist;
• regardless of the relevant personal data processing activity’s legal ground, at the time when personal data is obtained, the data controller or a person authorised by it is obliged to inform the data subjects;
• even if personal data is obtained in accordance with the law, data controllers must keep the personal data securely and take all necessary technical and administrative measures;
• contracts signed or to be signed by the data controller with third parties that the data controller engages in a business, including personal data processing activities, must be harmonised with the PDPL before execution or after execution through additional protocols;
• the data controller must prepare and adopt personal data policies and keep them up to date in parallel with the data controller’s practice; and
• each data subject has the right to request the data controller to disclose all information held on them.

During the due diligence review, the target’s compliance with the personal data protection legislation should be examined thoroughly.

If of one of the transaction parties is located abroad, the PDPL’s cross-border data transfer rules must also be complied with. The PDPL adopts three alternative mechanisms for the transfer of personal data abroad:

• an adequacy decision;
• international appropriate safeguards; or
• the existence of one of the exceptional circumstances determined under Article 9(6) of the PDPL.

If a transaction results in a change in the data controller:

• data subjects must be informed accordingly;
• the Data Controllers’ Registry Information System may need to be updated by the new data controller; and
• policies and other data protection documents such as disclosure texts must be updated.

One of the main principles of the Environmental Law (2872) is that expenditures incurred for the prevention, limitation, elimination or remediation of pollution and degradation and for the improvement of the environment will be borne by the polluter or the party that caused the degradation. Necessary expenditures made by public institutions and organisations due to the failure of the polluter to take the necessary measures to stop, eliminate or reduce pollution or degradation, or due to the direct taking of these measures by the competent authorities, will be collected from the polluter. Where pollution has occurred, the polluter must take the necessary measures to:

• stop the pollution; and
• eliminate or reduce the effects of pollution.

‘Polluters’ are defined as natural and legal persons who directly or indirectly cause environmental pollution or the deterioration of ecological balance and the environment during or after their activities. Where a buyer acquires a target that is a ‘polluter’, the buyer will indirectly become responsible for the target’s actions – including its liability for the clean-up of contaminated sites – through the transaction, unless the relevant transaction documents explicitly state otherwise.

In case of a contaminated site or the existence of other environmental issues, pre-transaction due diligence and contractual indemnities are critical for the buyer. Buyers should verify whether the target:

• is compliant with Turkish environmental regulations, such as:
• • waste management and recycling regulations; and
  • pollution regulations; and
• has obtained the necessary permits from the relevant authorities.

In any case, the buyer should seek seller warranties confirming that no environmental liabilities exist or negotiate indemnities for remediation costs if such liability is discovered post-closing.

Private M&A transactions in Türkiye have certain tax implications, such as in relation to income tax, corporate income tax, value added tax (VAT) and stamp duty, although certain exemptions apply. Further, the tax implications for different transactions between share transfers and asset sales differ, as outlined below.

Income tax: In case of the sale of shares by an individual, the capital gain derived through the alienation of the shares will be subject to income tax at a rate of up to 40%. However, in case of the sale of shares of a joint stock company (JSC), the capital gain derived through the alienation of the share certificates by individuals will be exempt from income tax if those share certificates have been held for more than two years.

Corporate income tax: The capital gain derived through the alienation of shares is subject to corporate income tax at a rate of 25% for 2025. However, if the seller is a Turkish resident company, it will benefit from an exemption for 75% of the capital gain from the sale of the shares if it has held such shares for more than two years.

Although non-resident companies cannot benefit from this exemption, any double taxation treaties between Türkiye and their resident country should be considered if Türkiye has taxation rights on any possible capital gain derived through the alienation of the shares.

The sale of assets is subject to corporate income tax.

VAT: The sale of shares by legal entities is subject to VAT. However, if the seller company has held such share certificates for more than two years, it will be exempt from VAT. If the share sale is realised through the delivery of share certificates, the share sale will be exempt from VAT regardless of the holding period of the share certificates.

The sale of shares by individuals is not subject to VAT.

The sale of assets is subject to VAT at the general rate of 20%; however, the rate may be lower based on the kind of asset.

Stamp tax: Most agreements are subject to stamp tax under Turkish law. However, the sale of shares of JSCs and limited companies is principally exempt from stamp tax.

By contrast, agreements pertaining to the sale of assets are subject to stamp tax.

Participants in M&A transactions in Türkiye, as in most jurisdictions, should benefit from the involvement of tax and financial consultants to define strategies to minimise their tax exposure.

Each company is a separate entity subject to taxation and losses cannot be transferred between group companies.

The participants in M&A transactions in Türkiye, as in most jurisdictions, should benefit from the involvement of tax and financial consultants to determine the optimal path from a tax perspective.

Over the past 12 months, Türkiye’s M&A landscape has experienced significant growth, marked by increased transaction volumes and notable deals across various sectors.

In 2024, the disclosed value of M&A transactions in Türkiye reached approximately $5.3 billion, with estimates – including undisclosed deals – bringing the total to around $10.1 billion. This marks a substantial increase on the figures for the previous year, when disclosed deals were valued at $2.8 billion, totalling $7.5 billion once undisclosed transactions are included.

The most attractive sectors for buyers were:

• technology, media and telecommunications;
• energy;
• industrial production and automotive;
• financial services;
• infrastructure; and
• construction.

High-profile deals that have shaped Türkiye’s M&A scene include the following:

• Kazakhstan’s Kaspi.kz acquired a 65.4% stake in Turkish e-commerce platform Hepsiburada for $1.1 billion, marking the year’s only mega-deal exceeding $1 billion.
• US-based General Atlantic invested $500 million in marketing technologies company Insider, underscoring the appeal of Turkish tech firms to international investors.
• UK-based ACG Metals acquired Turkish mining firm Polimetal Madencilik for $225.5 million, reflecting sustained interest in Türkiye’s mining sector.
• BP sold a $1 billion stake in a firm invested in the Trans-Anatolian Natural Gas Pipeline to Apollo Global Management.

Türkiye is in the process of developing its own AI law following the European Union’s AI Act. This forthcoming legislation is expected to regulate AI technologies, directly influencing due diligence processes in M&A transactions involving AI-driven businesses.

Furthermore, consistent with the European Union’s Digital Markets Act, certain news outlets have indicated that Türkiye is preparing new regulations designed to curb the market dominance of major technology firms by preventing them from favouring their own services in search engines, app stores and marketplaces.

Türkiye is also preparing a Climate Law to establish a legal framework for its 2053 net-zero emissions target. The Climate Law, which is currently in draft form, is expected to introduce:

• sectoral decarbonisation policies;
• emissions monitoring obligations; and
• corporate sustainability obligations.

For a smooth closing, early identification of risks through detailed due diligence is essential, to prevent last-minute surprises. Maintaining a comprehensive checklist to track pre-closing, closing and post-closing obligations helps to ensure that all parties are aligned. Equally important is keeping all relevant stakeholders, employees, customers and suppliers informed throughout the process, to minimise disruptions. Proactive planning and early resolution of issues can significantly smoothen the closing process.

Potential sticking points include:

• regulatory delays due to complications with competition authorities or sector-specific regulators; and
• issues arising from incomplete conditions precedent such as unresolved disputes or pending third-party consents.

Other common challenges involve:

• disagreements over warranties and indemnities;
• financing hurdles related to securing capital or the finalisation of debt arrangements; and
• uncertainties regarding the retention of key personnel and the integration of management teams.