Gamze Çiğdemtekin (pictured, left) and İpek Batum (pictured, right) of Çiğdemtekin Çakırca Arancı assess what lies ahead for the deals market over the next few years
Global economic uncertainties have affected the M&A market, and the recession in the Turkish market was as expected for 2019. According to the data reported on M&A transactions in 2019, the volume of the total M&A transactions in Turkey was $7.4bn. While many economists predict the M&A market may slightly fall in 2020, Turkey’s New Economic Program has optimistic targets that give confidence to investors to take advantage of the current market and expect higher returns in the next three years. Furthermore, there are significant opportunities still available for investors, with emerging sectors taking the spotlight.
Turkey’s outlook in 2019 and 2020
As per Statista’s values, the number of M&A deals for 2019 was 286 in Turkey: 174 of the deals were domestic transactions and 112 were cross-border transactions. While we do not expect an increase in M&A deals in 2020, small and medium sized transactions and the sale of companies transferred to the Savings Deposit Insurance Fund of Turkey (SDIF) will remain strong in the market. Information obtained from SDIF confirms that most of the companies’ valuation reports are near to concluding, and in 2020 the official gazette and SDIF’s website is set to announce which of these companies will be put to market for sale.
Despite the recession in the market and the drop in the value of the Turkish lira in 2019, the fluctuation in the market has created an opportunity for foreign investors to purchase valuable assets at a lower value. Furthermore, the increase of distressed companies and those companies going through refinancing and restructuring packages, again, enhanced and led up this opportunity. According to Debtwire statistics, more than $17bn worth of major restructuring and stressed refinancing transactions have been completed in Turkey between early 2018 and mid 2019, and in most of the refinancing packages the banks request sale of certain assets for lump sum payment obligations, which creates opportunities to purchase valuable assets at lower prices.
The decrease in transaction value is often seen as an opportunity for private equity investors. We also think that these opportunities will attract the strategic investors who wish to put their foot on the ground or extend their presence in Turkey who have long-term return expectations. We have continued to act on a steady stream of private equity transactions as well as for strategic investors in industrial, retail and technology sectors, despite the market conditions in Turkey, and we expect this to continue into 2020.
As a firm specialised in M&A, we expect transactions particularly in fintech and e-commerce to climb in 2020. According to J.P. Morgan 2019 Payments Trends – Global Insights Report, Turkey’s e-commerce market is expected to grow at a compound annual growth rate of 12% to 2021. The recent acquisitions in the space of three years such as eBay, Alibaba and Amazon back these reports, and demonstrate the investment opportunities in Turkey’s e-commerce sector. We expect the e-commerce sector and emerging fintech investments by domestic banks into digital payment infrastructure to impact the market in 2020.
Turkey’s decrease in the volume of M&A transactions is not unique and was evidently a global trend in 2019. Compared to 2018, 2019 was stagnate as uncertainty in markets deterred investors from taking any risks. We expect global transactions to carry over the 2019 recession aftermath on to 2020. According to a global transaction forecast, the M&A transaction value is predicted to decline globally and a 23% decrease in initial public offering proceeds is expected.
2020 and beyond
Once Turkey overcomes economic uncertainties, its investment landscape will be in a very different place. Turkey has an increasing appetite for fintech but also offers opportunities for investors in key industries such as energy, retail and automobiles, with a promising outlook to grow in the next ten years. In addition, the industry sector has great growth potential, with many emerging medium sized companies seeking to grow faster. The global shift towards alternative energy will continue to draw foreign investors to take advantage of Turkey’s renewable energy sources. Also, the latest developments in the automobile market, in which new energy-efficient models will be manufactured under a Turkish name, is clearly an area that will peak foreign investors’ interest. It is expected that Turkey’s first domestically manufactured automobile will be in the markets in the second half of 2022. Five domestic giants – Anadolu Group, BMC, KÖK GROUP, Turkcell and Zorlu Holding – along with the Union of Chambers and Commodity Exchanges of Turkey will lead Turkey’s Automobile Joint Venture Group (TOGG).
After 2020, private equity investors will reap the return of their investments, the energy and technology sectors will thrive, and TOGG’s ongoing project will influence the M&A focus towards the automobile and industrial sectors.
2. Baker McKenzie’s fifth annual Global Transactions Forecast, produced in conjunction with Oxford Economics
For more information, please contact:
Gamze Çiğdemtekin, managing partner
İpek Batum, associate
Çiğdemtekin Çakırca Arancı
Levent Mahallesi Zambaklı Sokak No: 10 34330, Beşiktaş, İstanbul
T: +90 212 227 00 61
F: +90 212 227 00 63