Sunday, October 30, 2011

Private Equity Firms Eye Turkish Department Store Chain YKM

Turkish retail sector continues to attract interest from private equity firms. YKM which is Turkey's first department stores brand from 20 years ago has been struggling to compete and fund its domestic expansion. The firms manages 38 owned stores and 24 franchises in Istanbul and Anatolia. 
I hear that Carlyle and Turkven a local PE shop are currently bidding for a stake in Istanbul-based department store chain YKM. They are joined by another Turkish private equity group Is Venture Capital and California-based real estate investor Colony Capital in the sale process, the two of which have partnered for the 63% stake.
Carlyle has teamed up with Turkish private equity investor Esas Holding for YFM, which is currently owned and operated by Turkey’s Agrali and Tan families.

Turkey has seen a wave of private equity interest in recent years, as firms seek to capitalise on the emerging opportunities on offer.
Global private equity firm Cerberus Capital Management recently partnered with Turkish bank Garanti Securities to invest up to $1billion in buy-out deals in the country.
However, the deal suggests existing players may be having tough time generating propsects for deals given there appears to be at least 5 financial investors involved with a transaction of a small department chain with 62 stores. YKM has been for sale for at least 3 years and this may not close. However, the next deal for dealmaker may take even longer.

Thursday, October 20, 2011

Do's and Dont's of Private Equity Dealmaking in Turkey

Earlier this week, I have had a first-hand experience of Turkey’s growing “center of gravity” among financial investors at a PE-focused event “Capital Impact 2011” organized by FT in London. I was the only senior advisor from Turkey that FT Business has invited to participate.
Some of the reasons for investors’s excitement include:

·         Turkey will be a trillion dollar economy by 2015.
 ·         From 2011 to 2013, the country’s privatization program will amount to about $50 billion, embracing the energy, banking, transportation, and telecom sectors.

·         The government is making plans to invest $100 billion in energy infrastructure over the next 20 years.

·         Sabanci Holding, my former company is only one of the two Turkish companies to make it to Boston Consulting Group’s list of Top 100 Global Challengers

China has become China by consistently growing the fastest in the world. However, unlike China, Turkey will prove to transform into a “China-like” growth democracy with better demographics and sustainable economy.

Building on all the excitement and growing interest, I’ve advised everyone to focus on six critical success factors:

1.    Need to be even more patient in Turkey. “Patient capital” will win in the end. 
2.    Know exactly what you will bring to the candidates – capital alone does not cut it anymore. Help them become “pretty” – build strong governance, enable IFRS reporting, fight bribery  & corruption etc. 
3.    Take a flexible and innovative approach to sourcing deals. Build and offer a local “multi-asset” strategy. Don’t always insist on majority or a minimum check size.  Sometimes you need to invest small to win big. 
4.    Be emphatetic to the local business community. First-generation business owners are in love with their firm more so than own children. What has gotten you successful globally may not get you too far in Turkey.
5.    Turkey is not just Istanbul. Can you count the top 10 cities that will deliver the biggest deals in the next five years? Which ones have you visited?
6.    Recruit local teams with ties to the community. Can’t cover it from abroad with credibility.

Alcohol, Billion Dollar Dealmaking and Muslim Turkey

Two major deals by alcoholic drink giants made some of the highest profile deals in Turkey, a country predominantly muslim with a stable, mature, western democracy. At the end of February, Diageo’s acquisition of Turkey’s Mey Içki for $2.1 billion was not a real surprise, as nascent talks were first reported back in December last year.

 But SABMiller’s play Wednesday morning for its Turkish adventure was not so well tracked. Still, the rationale is the same and that rationale is compelling—access to booming economies and fast-growing markets without paying for anyhting.

According to Wall-Street Journal, the London-based global brewing giant, maker of Grolsch, Peroni Nastro Azzuro and Miller Lite, announced a strategic alliance with Turkish peer Anadolu Efes, allowing the two companies to push further into Turkey, Russia, Central Asia and the Middle East.

It is understood that Anadolu Efes was also weighing up striking a partnership with rival Heineken as a platform for reciprocal growth in Russia, but in the end plumped for SABMiller as the advantages fit better with the brewer’s ambitions.

Taking a 24% stake in Anadolu Efes, SABMiller will transfer its Russian and Ukrainian beer businesses, with an equity and debt value of $1.9 billion, to the Turkish company in return. The Anadolu Group will control 42.8% of Anadolu Efes’s enlarged share capital.

The deal will allow Anadolu Efes to leverage SABMiller’s logistical expertise to distribute its portfolio of brands across the region, while SAB can in turn use the Turkish group’s dominance in the local markets to grow its international brands.

Anadolu Efes will have an 89% share of the Turkish beer market and occupy a number two market position in value terms in Russia, with a valuable portfolio of brands across key market segments.
Turkey is one of the world’s high growth economies with a population of 74 million people, while the company’s products overall reach more than 600 million consumers across the region.

It has also leading market positions in the growth beer markets of Kazakhstan, Moldova and Georgia.
As ever, the commercial benefits are key. The companies say the transaction is expected to be earnings per share enhancing for both groups in the first full year following completion, which is expected at the end of the year.

Sunday, October 02, 2011

IHH, Turkey's Acibadem To Form JV Valued Over $2 Billion

Integrated Healthcare Holdings Sdn Bhd (IHH), whose shareholders include Khazanah Nasional Bhd and Mitsui & Co of Japan, has entered into a non-binding term sheet with Turkey's Acibadem Saglik Yatirimlari Holding AS, to explore establishing an international joint partnership.

If successful, the partnership between IHH and Acibadem will become an integrated group operating in the healthcare services sector within the geographical corridor from Asia-Pacific to the Middle East and Eastern Europe.

In a statement, the hospital operator said IHH and Acibadem will commence due diligence and exclusive negotiations for the execution of binding and definitive agreements in due course.

IHH wholly owns Parkway Pantai Ltd and IMU Health Sdn Bhd. IHH and Khazanah collectively own 11.5% of Bombay-listed Apollo Hospitals Enterprise Ltd in India.

Turkey is providing rich opportunities for merger specialists trawling for the next big deal, as the country’s booming economy and improving corporate governance partially insulate it from a slowing global M&A market.

Globally, mergers and acquisitions activity has been suffering; the euro zone debt crisis is dampening activity in countries to the west of Turkey, while political instability is complicating decisions in much of the Middle East and North Africa.

A strong recovery from the global financial crisis of 2008-2009 has persuaded many long-term investors to look at Turkey. Its economy grew 10.2 percent in the first half of this year; it will not escape the looming global slowdown, but the International Monetary Fund’s forecast of 2.5 percent growth for Turkey in 2012 is still well above the 1.1 percent which it predicts for the euro zone.

Turkey’s location as a land bridge between Europe and Asia is also attracting investors, even though its prospects of joining the European Union have faded for the time being because of disagreement over Turkey’s role in northern Cyprus and concern among some EU states about the admission of a largely Muslim country.

Turkey's geographic proximity to Eastern Europe, the Middle East and Asia positions Turkey as an ideal hub for the corporate world as the China of Europe with half of the country younger than 29 years.

M&A deals with Turkish targets shot up to 218 deals worth $24.9 billion last year from 167 deals worth just $4.0 billion in 2009, when activity was hit by the last global economic slump, Thomson Reuters data shows.

Last year’s dollar value was lower than the record $30.6 billion hit in 2005, but the number of deals was much higher; there were 102 deals in 2005. So far this year, the value of deals has dropped back somewhat, to $8.4 billion, but the number has remained extremely high at 151.

Global private equity houses, local independent PE shops as well as Family-owned PE funds are increasingly active in Turkey.

The most popular M&A sectors have been energy, power generation healthcare, retail and finance. But the biggest splash so far this year was made by the world’s largest spirits company, Diageo, which agreed in February to buy Turkish raki and vodka distiller Mey Icki for $2.1 billion.

For foreign investors, Turkey’s corporate regulation has been a concern, but the planned introduction of the Turkish Commercial Code in July next year is expected to improve disclosure of companies’ financial performance, governance and ownership structures.

Turkey has adopted liberal economic policies under Prime Minister Tayyip Erdogan’s AK Party government over the past decade, which has been a key source of stability and economic reforms.