Turkey’s private equity boom cools as target valuations rise

Over 70 PE firms crowd market

ISTANBUL/BERLIN, Feb 27, (RTRS): International private equity firms which flocked to Turkey are finding that a strong economy is not enough for them to get deals done, as target companies’ valuations rise and the industry faces stiff competition.

Europe’s fastest-growing economy has attracted some of the top names in private equity over the past decade, including US-based firms Carlyle Group, KKR and TPG Capital, and Europe’s Bridgepoint.

Turkey appeared to fit their desire for new opportunities, as its economy continued growing despite the global credit crisis, Europe’s debt problems and political turmoil in the Middle East.

But the same firms are now finding it increasingly difficult to identify new investments and exit their current ones, in a market which some analysts believe has grown unsustainably fast and has become overvalued.

“Investing in Turkey is not easy, but for a private equity investor life is even more difficult,” said Can Deldag, co-head of Carlyle MENA Partners, told the SuperReturn International conference in Berlin this week.

Few people expressed such sentiments two or three years ago, when Turkey was the go-to place for many private equity investors and large deals were getting done.

Among some of the big deals was the $2.1 billion sale of Turkish spirits group Mey Icki by TPG Capital and local private equity group Actera to Diageo in 2011. BC Partners agreed to buy Migros Turk, the country’s largest supermarket chain, for $3.2 billion in 2008.

In 2007, KKR bought shipping company UN Ro-Ro Isletmeleri for about 910 million euros ($1.2 billion).

Profits

But such deals have dried up, making it tougher for some investors to make profits. Private equity transactions in 2012 made up just 6 percent of Turkey’s mergers and acquisitions activity of $28 billion, Carlyle’s Deldag said.

Excluding internet and e-commerce investments, the average number of Turkish deals per private equity fund is just 0.5 per year, he estimated.

“There is no easy money in this market any more. It is not a place where you can fly in and fly out and expect to close deals and exit investments,” Selcuk Yorgancioglu, Abraaj Group’s Turkey head, said in an interview in Istanbul.

The emerging markets private equity firm sold its stake in Turkey’s largest hospital chain, Acibadem, to a unit of Malaysian state firm Khazanah Nasional for an enterprise value of over $2 billion last year.

Abraaj is now looking to exit its investment in Acibadem Insurance, a leading health care insurer, to a strategic investor in 2013, an industry source aware of the fund’s plans said, declining to be named because the matter is not public. The firm declined to comment.

Amajor reason for the recent dearth in deal activity is the rising expectations of Turkish companies, which are often owned by large family firms.

Strong economic growth, expected