2019 could be the year for startups and international investors

Fatih Kuran, the founding partner of Dinamo Consulting, is optimistic and expects the pace of M&A activity to increase in 2019. Turkey has gone through such turmoil periods before, ever strengthening its position, he says, citing historical data. This period is very advantageous for investors, especially for international investors.

Kuran also believes that Turkish startups will receive more interest from angel investors and VC’s looking to make higher returns. Even though municipal elections may cast a shadow on the activity, a stronger recovery will be possible for the rest of the year if Turkish and European stability is observed, Kuran says. Debt restructuring deals and Brexit could also have a positive impact on activity, he adds.

Who do you th nk w ll be more act ve n Turk sh markets n 2019, Turk sh nvestors or nternat onal ones? And why?

We think we need to separate startups and corporate deals from one another. In our opinion international investors will be more active in corporate deals in 2019. But on the other hand, domestic angel investors of VCs will be more active in start-ups. Turkey has gone through such turmoil periods before, even strengthening its position and this period is very advantageous for investors to enter a market of 80 million people.

Do you expect an upt ck n the M&A volume n 2019 or a downward trend?

When we look at the last 20 years of Turkey, the highest number of M&A transactions reached was in 2012 with 303 deals. Out of these deals, 21 of them were privatizations. Although it is quite difficult to estimate the total number of transactions for 2019, we expect the number to be higher than previous years. That is because looking at the historical data in the years following the crisis, a larger number deals are observed. M & A transactions, which have been in a downward trend in recent years due to various internal and external factors, may show a surprise performance in 2019.

How could the mun c pal elect ons effect M&A act v ty?

Although no major change of power in politics is expected after the March 31 municipal election, this election tends to increase the uncertainty in the market. Even though there is almost no direct effect to the economy or companies, psychologically investors would like to get over such periods before they make their investment decisions. For that reason, M&A volume could be a little bit lower for the first quarter of 2019 until the election is over.

What w ll be the ma n trend for M&A act v ty n 2019?

There is an increasing trend in the start-up market in Turkey. We have very successful entrepreneurs in Turkey but most of them do not have adequate capital at the initial stage. So, there is an important market for angel investors and VCs. On the other hand, strategic investors and foreign direct investment will most probably increase in 2019 compared to previous years. Depending on the political stability in Turkey and in the neighboring countries, the main trend for M&A activity would be upward in both number of deals and volume in 2019.

On the basis of sub-sectors, the automotive spare parts industry, FMCG and textiles will be of interest. In addition, geothermal, hydro, solar and wind power plants within the scope of renewable energy projects, which have a long-term power purchase agreement, would be attractive for investors. Assets owned by domestic investors, which are affected by the cash shortage, and foreign investors who intend to exit the Turkish market can also create extra M&A potential. Most probably we will see a new privatization trend in the near future. We expect some of them to be finalized in 2019, which will have a positive effect on M&A activities.

Would debt restructur ngs have a pos t ve or negat ve effect on M&A act v ty?

In Turkey companies with no or limited foreign exchange income barrowed significant amount of foreign exchange denominated loans in recent years. Some of the companies used debt restructuring as a means of converting their debts to TRY, which is positive progress. On the other hand, high interest rates associated with TRY borrowing would shrink their profit margins in the long run.

In the general sense, we believe that the debt restructuring is a positive action taken in 2018. Normally we expect restructurings to effect M&A transactions positively as the financial stability of companies will increase and there will be a positive effect on cash flows.

As western nvestors shy away from the Turk sh market, who are the new nvestors replac ng them?

We expect investors from the Middle East and Far East to be more active in Turkey. The logistical advantage of Turkey will at- tract more investors from Australia as well. We also expect interest from Germany and the U.S. to continue. After the conclusion of Brexit, the interest of British companies will also increase. We also believe that Chinese and Japanese companies will be more willing to invest in Turkey.

Are Turk sh corporate nvestors look ng for opportun t es abroad? Why s outbound M&A act v ty lower?

Turkish investors who have global targets will continue to invest abroad for sure. Also, Turkish angel investors of VC companies are looking for investment opportunities in start-ups abroad, mainly in the U.S. They would like to invest in potential unicorn companies of the future and the probability of finding one is much higher in the U.S. compared to Turkey.

What could be the potent al outbound nterest of Turk sh nvestors n Europe and As a? Any other prom s ng markets n MENA and South Amer ca?

One of the potential markets for Turkish investors is newly comers in the European Union. In these countries, there are young and educated populations and the market is more open to new successful investors. We also think that the MENA region is a promising market for Turkish investors. We have experienced many successful investments in that region, like Tosyalı’s steel production investment in Algeria. This successful investment encouraged them to make a new investment in Senegal. This region is open to new investments, especially in terms of manufacturing projects.