Foreign interest in Turkey will never end: merger guru
One of the key indicators of trust in a country’s economy is its rate of foreign investments, company acquisitions and mergers. How have developments over the past three years and, most recently, the fluctuations in the exchange rate, affected foreign investors? We put that question to Pragma Corporate Finance Manager, Kerim Kotan, considered a leading expert on this issue.
“Whatever we are going through, I don’t think it will send us into recession and end foreign interest in Turkey,” Kotan says.
One of the most important issues for foreign investors is whether Turkey’s story will evolve and how that evolution will play out. Kotan believes Turkey’s story is still strong. His opinion is important: in addition to his own successful ventures, he is experienced in terms of recognizing foreign investors. Pragma has completed 85 transactions with a total volume of $6 billion as of today. Over his 20-year career, Kotan alone has made $18 billion worth of transactions. In other words, nearly 9 percent of the $196 billion that has come to Turkey over the last 16 years has gone through is hands.
We had a run of bad luck
“We all agree that Turkey has experienced a run of bad luck in the last three or four years,” Kotan says. “Nevertheless, the interest of foreign investors in Turkey still continues. It was $7 billion in 2016, $10 billion in 2017, $8 billion in 2018, including the transactions announced but not closed yet in the first 6 months. We have sold two companies to the Americans in the last year. At the height of the political crisis with America, we sold two Turkish industrial companies to American strategists, both of whom are billion-dollar fund managers.”
Effect of the latest fluctuat on
So how did the recent currency fluctuations, which are affecting company values, leave a mark on the future?
“At the moment, the players who invested mainly in retail, food and beverage companies, which generate lira revenues and do not make exports, the situation is unpleasant. Because they invested $10 million and grew the company 4-5 times on a TRY base over 5 years, if they sell now, there is not much return in dollar terms. Therefore, over the last 2-3 years there has been great interest in industrial companies that have export income in euro or dollar, that do not have that much euro or dollar inputs in production costs, who pay their labor in lira, do not have debts in dollars, and engage in value-added production. Recently, we sold Okida, a niche player that makes control mechanisms for the white goods sector in Turkey. We signed the contracts before the hike in exchange rates. Then the rates jumped, but the deal was still closed.”
Interest n Turkey w ll not end
“In the coming period, the companies that have to break down will go bankrupt,” Kotan says. “I mean the companies that have liabilities in dollars and borrowed without thinking carefully and thus cannot roll over their debt because of the rates will obviously go bankrupt.
There is nothing we can do about it. This will not drag Turkey into recession and end foreign interest in Turkey. As long as half of the 80 million population in Turkey is under the age of 35, as long as there is a $750-800 billion economy here, as long as Turkey’s geostrategic location remains, there will still be foreign interest in Turkey.
Geostrateg c locat on s mportant
“If we look at Turkey in terms of production quality and geostrategic location for Europe, this is something that the Far East cannot supply,” Kotan says. “If a company can order various amounts of various products and can get them in one week, this is very important for different product groups. Today, American and European companies that we are in contact with are thinking about moving their production from the Far East to Turkey. The key for our industrial companies today is to take advantage of selling quality and cheap products to Europe. Production costs today are much lower than in Eastern Europe and we have better production quality. I think that the volume of business from there will increase by either moving their factories here or by working with support from here.”
T me to buy cheap compan es?
Do lower prices create an opportunity for purchasing companies?
“No one will make a purchase just because a company worth $100 million is selling at half price. Buyers look at a company’s future. There’s a reason that it is cheap, for instance labor costs have dropped in Turkey but is that something that will be sustainable? There are other factors that are more important, like the quality of production. When we look at the very big companies that have made names in the the global market which are profitable, such as Arcelik, Vestel, etc., they made their decisions to be in this industry years ago and covered ground over years. In SMEs, factors such as the transformation to industry 4.0 and global integration will be important.”