EY - Transactions in focus: Spotlight on M&A in Turkey

Transactions in focus:
Spotlight on M&A in Turkey

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The first issue of Transactions in focus explores the Turkish M&A environment and provides practical guidelines when investing in this vibrant market.

“Turkey gains stature and is building following from investors as the Erdogan government moves the country farther away from the currency and macroeconomic crises of recent years. It is acquiring a reputation as an increasingly sophisticated and transparent market.” -Pär-Ola Hansson, EMEIA TAS Deputy-Leader
and Chairman of the European Corporate Development Network, EY

Approaching investment in Turkey

In recent years, Turkey has enjoyed a significant increase in its attractiveness as a location for transactions, which has been driven by an improving regulatory and governance environment, as well as a technological infrastructure superior to many others of the rapid-growth-markets (RGMs). All in all, the country has the potential to become a real M&A player. These strengths are attracting a number of investors to Turkey. Indeed, the country is beginning to be thought of in the same bracket as Brazil, Russia, India and China. Turkey expects a GDP growth rate of 3.5% in 2013, moving up to 5% in the medium term .

Turkey in numbers

  2011 2012 2013e 2014f 2015f 2016f
Real GDP growth (% per year) 8.8  2.2 3.5 5.4 5.2 5.2
CPI inflation (% per year) 6.5  8.9 6.6 5.4 5.0 4.6
Current account balance (% of GDP) -9.7  -6.1 -7.0 -7.2 -6.9 -6.7
External debt total (% of GDP) 39.2 41.5 40.8 39.8 39.0 37.1
Short-term interest rate (%) 8.6  8.7 5.6 7.4 9.4 9.5
Exchange per US$ (year average) 1.7 1.8 1.8 1.9 2.0 2.0
Government balance (% of GDP) -1.4 -2.1 -2.1 -1.7 -1.4 -1.3
Population (millions) 73.7 74.6 75.5 76.3 77.1 77.9
Nominal GDP (US$b) 777.2 790.5 855.2 905.1 954.2 1,034.4
GDP per capita (US$ current prices) 10,539.4  10,595.2 11,332.9 11,863.4 12,375.5  13,280.4
Source: Data provided by Oxford Economics, published in EY’s Rapid-Growth Markets Forecast, July 2013.

Potential investors in Turkey need to enlist specialty advice in a range of areas, including accounting, corporate governance, family companies and taxes. In return, investors are likely to benefit from a number of advantages to doing business in Turkey, including a skilled, well-educated workforce with high expectations.

Yet foreign companies looking to operate in Turkey, like those in other emerging markets, need to have a good understanding of key issues in the country, including regional differences and distinctions between manufacturing and exporting industries and between public and private companies.

Key issues in the Turkish transaction environment


Mismatch of price expectations between buyers and sellers:

  • Different risk perception of buyers and sellers
  • Aggressive business plans of sellers
  • Buyers reluctant to pay high premium compared with their own multiples

Corporate governance issues and dealing with family businesses:

  • Limited corporate governance (small to medium companies)
  • Limited transaction experience
  • Dependency of the business on family members

Regulatory issues, legislation and permits:

  • Changing or volatile regulations
  • Bureaucracy
  • Difficulty in enforcement of M&A-related contracts

Lack of high-quality financial information (in small to medium-size entities):

  • Lack of high-quality financial data, unless the target is publicly traded or listed
  • Unrecorded transactions in certain sectors
  • Limited use of management reports and other KPI monitoring systems to manage the existing business

Macroeconomics risks, albeit diminishing:

  • Currency risk
  • Dependency on imports (mainly energy and commodities)
  • Exposure to cyclical sectors in exports, e.g., automotive, machinery

Before investing in Turkey, businesses should consider

  • Regional differences: Turkey can be thought of as three very different regions: the major cities, the rapidly developing southern tourist area, and the lesser-developed eastern area.
  • Geography: investors should also remember Turkey’s location means that it is a great potential platform for launching investment in the Balkans and Central Asia.
  • Accounting: there is not a significant difference between local Turkish accounting and IFRS, and investors are less likely to find multiple sets of financial books.
  • Workforce and wages: many workers have spent time in the US or Europe and are highly qualified. Wages are surprisingly high, especially at executive levels, where the market is particularly competitive. Meanwhile, memories of hyperinflation still resonate in the salaries paid by many joint ventures companies, which tend to quote them on a net basis and in US$, rather than in gross local figures. The labor market is also highly regulated and not particularly flexible, making it especially important for companies to identify experienced local advisors with knowledge of contract law. English language skills tend to be strongest in bigger companies and in Istanbul and Ankara.
  • Legal issues: Turkish law is based on different principles to the American and European law and the interpretation of the law can be quite different. Hiring a local lawyer should be one of the first steps of any foreign investor.
  • Lobbying: especially in highly regulated industries, Turkey’s Board of Trade in Ankara can be quite challenging. This underscores the need for a good relationship with the Board as well as lobbyists in Ankara who understand how to convey investors’ interests in these industries.
  • Family firms: the majority of Turkish companies are still essentially family businesses. It is likely you will need to work with them if you want to instigate a deal of any size in Turkey. With strong competition between the family groups, a foreign investor can’t hedge their bets by choosing more than one.
  • Tax: the tax situation in Turkey is more complicated than in some other countries, and a good tax advisor is a necessity.

Businesses investing in Turkey should keep the following practical guidelines in mind:


Hire a local CFO and a local CEO


Hire a lawyer with Board of Trade knowledge


Lobby in Ankara, especially in highly regulated industries


Enter a JV as a safe entrance strategy


Take a middle- to long-term view – you may not get a quick return


Don’t drop in expats and expect them to understand Turkish markets; if you do, let them start at a lower level and give them the opportunity to build their role.