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?

Dünya Executive - - COVER PAGE - By Mehmet Filoglu

Foreigners and big buys dominated in 2017 but the overall picture looked flat

1

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.

2

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.

3

Private-public balance

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.

4

Domestic-foreign balance

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.

5

Featured transactio­ns

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.

6

Investor profile

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).

7

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.

8

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.

9

Sectoral distributi­on

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.

10

2018 overview

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.

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