By Suzy Bibko, Content Marketing Manager, EMEA
Turkey had a relatively strong start to 2020, with deal values totalling $4.3bn across 53 deals to date, surpassing the $3.8bn full year value of 2019. However, the COVID pandemic along with longstanding economic problems persist in Turkey. At our recent webinar moderated by Elaine Green, Orhan Ayanlar, Gokhan Kacmaz, John Komninakidis, Eren Kursun, and Kaan Zaimoglu discussed what’s holding M&A in Turkey back, and how it can turn around.
Elephants in the room
This year has been tough for M&A across the globe. But for Turkey, several factors have exacerbated the problem. As Zaimoglu so aptly put it, “In 2020 we have multiple elephants in the room: COVID, the Turkish lira depreciation, double-digit inflation, and the US elections. All affect investment decisions and 2020 has been very challenging for M&A in Turkey.”
“We saw a very sharp decline in deal activity this year through the middle of summer, with most deals been halted or postponed because of the uncertain environment, and this impacted the number of deals this year,” explains Kacmaz. “There have been some very large deals in the Turkish context, positively impacting the total deal value. However, if we exclude those, we see a sharp decline and trend equal to last year’s total deal value. But now we are seeing a slow bounce back in transaction levels in Q4.”
However, the issue of overall stability in Turkey could take a long time to come to fruition. Changing cultural norms does not happen overnight.
“The biggest elephant perhaps is normalization for Turkey,” says Kursun. “We have to normalize. We have to become more predictable. We need to take steps to secure trust, and that includes the rule of law and predictability, and clean rules around intervention and non-intervention of the state. There’s lots to be done but I’m very optimistic about what can happen in Turkey.”
Ayanlar agrees. “There needs to be more visibility and uncertainty needs to be lifted. Somebody who’s looking at a Turkish asset should be able to make a three- to five-year business plan. If that can be done with a high level of confidence, then we will see international investors coming back to Turkey because it has huge untapped potential.”
Turnaround for Turkey
So, can M&A turnaround in Turkey? Practitioners seem optimistic that they can – for several reasons.
“Confidence and demand are necessary to change the dynamics of the M&A market,” stresses Komninakidis. “There is a huge pipeline of projects in Turkey, especially at the pre-NBO phase. Financial advisors have just been preparing for the right timing. We need to take timing into account because it is a positive contributor to the confidence issue, by which I mean bridging the value expectations gap.”
“There has also quite a bit of pent-up demand in the market,” says Zaimoglu. “People are ready to do transactions. They have been waiting on the sidelines for quite some time for things to stabilize and as soon as that happens, whether that be with the Turkish lira or the outcome of the US elections, as well as the release of a vaccine, we’re going to be in a situation where people will be ready to use their balance sheets to make acquisitions or improve their balance sheet situation because they will be able to go out to the lending market and get more favorable rates in more stabilized market environment.”
Ayanlar believes that opportunity can come from adversity: “The trend we’re seeing for Turkey is if a business needs cash, it may be open to selling its jewel assets. So that has been a deal driver in 2020, as well as companies that want to partner up and grow and take market share in this difficult year. Gaining market share is the time to invest if you have the right balance sheet, as well as being able to uniquely purchase companies that would not have been available if larger groups did not invest into other struggling businesses.”
And will this occur in certain sectors? “Tech, fintech, gaming, and ecommerce are all doing quite well in terms of deal activity, so we will see more transactions in those spaces,” explains Kacmaz. “And we will likely see more restructuring activity in the sectors that have been negatively impacted by the virus.”
Tech can help Turkey
As we’ve all seen, tech is playing a big role in getting deals done, no matter where you are – although there appears yet to be a satisfactory replacement for a physical site visit; drones just aren’t the same.
So, drones aside, tech is not only making doing deals possible, but it is also making doing them quicker, more efficient, and more data driven. And M&A practitioners everywhere seem to be embracing it. Turkey included. The technology is available now to help practitioners move those deals forward quickly when the turnaround comes.
“Datasite is investing heavily in its technology to help transform the M&A process for M&A professionals everywhere,” says Komninakidis. “Our overall philosophy is to change the way M&A professionals are doing their daily due diligence tasks. And we are bringing more game-changing tools – not only in our leading VDR, but also in a new buyer’s tool, Datasite Acquire, and a new asset marketing tool, Datasite Outreach – to practitioners than any other company, to help them succeed. The technology is here. And Turkey has a strong partner on their side in Datasite.”