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

Dunya Executive - - BUSINESS BY LAW - DR. UMUT KOLCUOGLU, MANAGING PARTNER KOLCUOGLU DEMIRKAN KOCAKLI ATTORNEYS AT LAW ukolcuoglu@kolcuoglu.av.tr

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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