Mergers and acquisitions
Based on data from Ernst and Young, M&As in Turkey were a mixed bag in 2017. Detailing the structure of the transactions, will M&As in 2018 match last year?
Foreigners and big buys dominated in 2017 but the overall picture looked flat
Overall assessment of 2017
The cautious stance of investors, which has been the case for several years in terms of mergers and acquisitions, continued. Last year, the total number of mergers and acquisition transactions announced in Turkey was 251. This number was equal to the level in 2016, a flat trend that mirrored the state of affairs in M&A around the word. However, compared to 2016, last year witnessed a slight increase in high-value transactions which helped boost the overall value.
Volume of transactions
Of the 251 transactions in 2017, 127 were priced, reaching a total value of $7.4 billion. Among all transactions, there was only one that exceeded $1 billion. On the other hand, the number of transactions topping $100 million was 17, raising the total value slightly compared to 2016. The transactions in SMEs continued in 2017 at the same pace as previous years. In addition, there are indications of $100 million-plus transactions among those that remain unannounced, raising the total value of M&As to an estimated $10 billion in 2017.
In 2017, the number of private sector transactions was 238 and the number of public sector transactions was 13. The total value of announced private sector transactions was $6.8 billion (91 percent of total transaction value), while the total amount of public transactions was $604 million. Due to the decline in public sector transaction activity compared to previous years, transactions in the public sector were significantly behind private sector transactions in terms of transaction volume.
Foreign investors left domestic investors behind with a 62 percent share of the total transaction volume. Foreign investors’ interest, however, remained low in 2017 due to the geopolitical developments that emerged around Turkey and the uncertainty experienced in global markets.
In 2017, the total of the top 10 transactions with the highest values was $5.2 billion, while one transaction was above $1 billion. Only one of these transactions was in the public sector. With the contribution of transactions like Vitol Investment’s pur- chase of OMV Petrol Ofisi at a price of $1.44 billion, BBVA’s acquisition of 9.95 percent of Garanti Bank’s stock at a price of $ 917 million, IFM Investors’ purchase of 40 percent of Mersin Port’s shares for $869 million, the share of the private sector of the top 10 transactions was 93 percent. By means of Entek Elektrik’s win in Menzelet HEPP and Kılavuzlu HEPP Transfer of Operating Rights tender for $365 million, public transactions earned a share of 7 percent in the top 10 transactions.
As mentioned, foreign investments ($4.6 billion) topped domestic investments ($2.8 billion) by a wide margin, similar to 2016. On the transaction volume side, however, Turkish investors maintained their weight in recent years and signed 173 deals compared to the 78 signed by foreign investors in 2017. The average transaction amount of foreign investors for publicly announced transactions was $ 142 million (compared to $68 million in 2016).
The weight of the West
In transactions involving foreigners, preserved their weight in numbers albeit at a diminishing pace compared to past years. The list of the top countries included UAE, Japan, South Korea and India, as well as the U.S. and EU countries. On the basis of transaction value, the Netherlands ranked first among foreign investors with a total of $1.44 billion, followed by Spain with $921 million.
Private equity funds
Interest in Turkey by private equity funds in recent years showed an increase in 2015 and 2016. In 2017, the number of completed transactions increased to 82 from the 70 in 2016, while their share of total transactions also increased slightly - 33 percent compared to 29 percent.
In 2017, as it was in 2016, the energy sector led the way in terms of transaction value while the IT sector was first in terms of transaction volume. Among the top 10 transactions announced this year were four energy sector transactions. On the other hand, in 2017, transportation, financial services and real estate were the leading sectors in terms of transaction value, after the energy sector. In addition, the food and beverage sector drew attention both in terms of transaction value and transaction volume, and health and manufacturing sectors in terms of transaction volume.
In 2018, the pace of small and medium-sized transactions will continue in mergers and acquisitions. In addition, some large-scale events, which were expected to happen, may now materialize. The sales transactions of companies transferred to the Saving Deposits Insurance Fund (SDIF) are also one of the issues that may affect the merger and acquisition volume in 2018. If the privatization of Fenerbahce Kalamis Marina and Tekirdag Port, and various electricity production assets belonging to EUAS, take place, they may be the hallmark transactions of 2018. In the retail, healthcare and manufacturing sectors, relatively large-scale transactions are expected to take place.