ISTANBUL (Reuters) - Turkey is providing rich opportunities for merger specialists trawling for the next big deal, as the country’s booming economy and improving corporate governance partially insulate it from a slowing global M&A market.
The latest prospect to surface involves Turkish hospital group Acibadem (ACIBD.IS: Quote,Profile, Research, Stock Buzz), which notified the Istanbul Stock Exchange at the end of last week that it was in talks with various parties, including Malaysia’s state fund Khazana Nasional KHAZA.UL. Sources close to negotiations told Reuters that Integrated Healthcare, 70 percent owned by Khazana, had entered talks to buy Acibadem in a deal that could be worth $500 million.
Globally, mergers and acquisitions activity has been suffering; the euro zone debt crisis is dampening activity in countries to the west of Turkey, while political instability is complicating decisions in much of the Middle East and North Africa. ”As Turkey has managed to stand out positively in Europe and its region, it would be fair to say that some of the foreign investment looking at Eastern Europe and the Middle East has shifted and will shift to Turkey in the near future,” said Musfik Cantekinler, partner at consultancy Ernst & Young in Istanbul.
A strong recovery from the global financial crisis of 2008-2009 has persuaded many long-term investors to look at Turkey. Its economy grew 10.2 percent in the first half of this year; it will not escape the looming global slowdown, but the International Monetary Fund’s forecast of 2.5 percent growth for Turkey in 2012 is still well above the 1.1 percent which it predicts for the euro zone.
Turkey’s location as a land bridge between Europe and Asia is also attracting investors, even though its prospects of joining the European Union have faded for the time being because of disagreement over Turkey’s role in northern Cyprus and concern among some EU states about the admission of a largely Muslim country.
"Its geographic proximity to Eastern Europe, the Middle East and Asia positions Turkey as an ideal hub for the corporate world," Stefan Heilmann, Managing Director of German investment bank IEG, which earlier this year set up a corporate finance consultancy with Turkey’s Global Securities in Istanbul, called IEG-Global Corporate Finance Advisory.
M&A deals with Turkish targets shot up to 218 deals worth $24.9 billion last year from 167 deals worth just $4.0 billion in 2009, when activity was hit by the last global economic slump, Thomson Reuters data shows.
Last year’s dollar value was lower than the record $30.6 billion hit in 2005, but the number of deals was much higher; there were 102 deals in 2005. So far this year, the value of deals has dropped back somewhat, to $8.4 billion, but the number has remained extremely high at 151.
Global private equity houses, including Blackstone (BX.N: Quote, Profile, Research, Stock Buzz), KKR (KKR.N: Quote, Profile, Research, Stock Buzz), TPG Capital and Advent International, are increasingly active in Turkey. "We consider Turkey "the China of Europe": strong growth prospects, young, large and well-educated population, entrepreneurial spirit, stable politics and reliable legal ownership titles," Heilmann said.
The most popular M&A sectors have been energy, power generation and finance. But the biggest splash so far this year was made by the world’s largest spirits company, Diageo (DGE.L: Quote,Profile, Research, Stock Buzz), which agreed in February to buy Turkish raki and vodka distiller Mey Icki for $2.1 billion.
Ernst & Young estimates that of all M&A involving Turkish companies in the first half of 2011, nearly half involved inbound transactions by foreign investors, while purely domestic transactions accounted for nearly half. Outbound transactions — Turkish firms buying assets overseas — made up just 4 percent.
For foreign investors, Turkey’s corporate regulation has been a concern, but the planned introduction of the Turkish Commercial Code in July next year is expected to improve disclosure of companies’ financial performance, governance and ownership structures.
"The number of companies audited by independent auditors have increased significantly and Turkish family businesses are getting more familiar with international investors and M&A transactions," said Mehmet Sagiroglu, chief executive officer at IEG-Global Corporate Finance Advisory.
Despite a reputation for deep-rooted nationalism, Turkey has adopted liberal economic policies under Prime Minister Tayyip Erdogan’s AK Party government over the past decade. Sagiroglu said that apart from a 40 percent cap on foreign ownership in Turkish Airlines, there were no significant legal barriers for foreigners to acquire companies and participate in Privatization exercises in Turkey.
He predicted the government’s Privatization program would continue to stimulate foreign interest in Turkish assets. “Motorways and bridges will be privatized soon for a concession period of 25 years, and foreign investors will be among the bidders.”
By Birsen Altayli and Seda Sezer