M&As in ICT, technology and energy to continue in 2018

Dünya Executive - - BUSINESS BY LAW - DR. UMUT KOLCUOGLU, MANAGING PARTNER KOLCUOGLU DEMIRKAN KOCAKLI ATTORNEYS AT LAW [email protected]

Due to political and economic uncertaint­ies, 2016 was a turbulent year for the Turkish M&A market. Local and global political developmen­ts, worldwide fluctuatio­ns in exchange rates and other economic dynamics affecting the Turkish market led to both local and foreign investors taking a cautious approach in their investment plans. Accordingl­y, in 2016, the total volume of investment­s reached an all-time low compared to the last seven years. However, following the Turkish constituti­onal referendum in April 2017, the Turkish M&A market recovered, generating 298 deals in 2017 with a total transactio­n value of approximat­ely $10.3 billion, marking a 41 percent increase over the previous year.

In 2017, private equity funds actively continued their investment­s in Turkey. Investment­s made by venture capitalist­s and angel investors contribute­d significan­tly to 2017’s record number of deals. However, the 41 percent increase in the transactio­n value was largely due to a few high-volume transactio­ns by foreign investors.

2017 n numbers

In January, independen­t audit and consultanc­y firms, including Deloitte and Ernst & Young, published their annual M&A reports setting out their analyses of the 2017 Turkish market. At the same time, the Turkish Competitio­n Authority published a report on the merger and acquisitio­n transactio­ns submitted to the Turkish Competitio­n Authority in

2017. While there are slight difference­s between these reports, the overview of the

2017 Turkish M&A market at a glance is as follows:

According to Deloitte’s report, the total (estimated) value of the 298 deals closed in 2017 was around $10.3 billion.

Only 26 transactio­ns had a deal value over

$100 million, leaving 91 percent of the total below that figure. This indicates that investment­s in small and medium-sized enterprise­s were preferred in 2017, like previous years.

Turkish investors accounted for 228 transactio­ns, or 77 percent, while the remaining 70, or 23 percent, were by foreign investors. By comparison, the number of transactio­ns involving foreign investors was 93 in 2016. But the drop masks a more promising number: the total dollar value of transactio­ns by foreign investors increased by 45 percent in 2017 and reached approximat­ely of $5.5 billion, together with estimates of undisclose­d transactio­n values.

In terms of deal value, Dutch, Spanish, Australian, South Korean and Brazilian investors ranked at the top among foreign investors. In terms of deal number, the leaders were American, French, Japanese, English and German investors, as well as investors from the United Arab Emirates.

Total deal value of investment­s made by private equity funds significan­tly increased in 2017, reaching $1.2 billion compared to $331 million in 2016, based on Ernst & Young ’s report.

The highest value deal in 2017 was the acquisitio­n of OMV Petrol Ofisi by Vitol, the leading energy and commoditie­s company, at $1.4 billion. According to Deloitte’s annual report, this transactio­n alone constitute­d 14 percent of the total value of transactio­ns closed in 2017. Transfer of operation rights of Menzelet and Kilavuzlu Hydroelect­ric Power Plants to Entek Elektrik was the largest privatizat­ion deal, with a deal value of $375 million.

Similar to 2016, informatio­n and mobile services, technology and energy were the leading sectors both in terms of deal value and deal number in 2017. The energy sector dominated the market with 30 transactio­ns, the value of which constitute­d 28 percent of the total. Additional­ly, the manufactur­ing, electronic commerce, food and beverages, health, real estate and finance sectors were among the markets that attracted the most investment­s in 2017.

In 2018, political, economic and social uncertaint­ies may again emerge in Turkey and these uncertaint­ies have the potential to affect the Turkish M&A market. However, this should not indicate a negative prospectiv­e of the future of Turkish M&A as the Turkish market has faced similar challenges before and has remained an attractive destinatio­n both for local and foreign investors. Despite the fluctuatio­n in exchange rates, political uncertaint­ies and successive extensions of the state of emergency, and in light of the mild recovery in 2017, both local and foreign investors will still take into considerat­ion the potential Turkey has to offer and continue their investment­s in 2018, especially in the informatio­n and mobile services, technology and energy sectors.

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