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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.

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.

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.

Larry, Please Buy Autonomy

The Akbas Post has already informed public about Autonomy having heavily shopped itself around for two years back in August. Larry Ellison of Oracle posted Autonomy's Information Memorandum on its website.

Autonomy CEO Lynch is in big trouble with London SE and HP' $11.7 B deal could be in jeopardy. And of course, following Megg Whitman's appointment, HP soap opera continues!

Larry Ellison has built a reputation for buying companies at bargain prices; His spat with Mike Lynch is brilliantly calculated in an attempt to kill HP/Autonomy deal by having authorities heavily scrutinize the deal and any past transaction attempts that were kept from the public by Autonomy management, for which they could go to jail or be banned from executive posts in public companies. 

Most of deals come in with mult-year earnouts and stay-on bonuses for key executives, this alone could kill the deal itself. If the deal is dead, Autonomy's shares would tank and Ellison would then conveniently make his move, as he has done in the past.

According to Financial Times this morning, Autonomy, Oracle and a leading technology banker fell into a war of words over Hewlett-Packard’s high-priced acquisition of the British software company this week.

Larry Ellison, Oracle’s rambunctious chief executive, and Mike Lynch, Autonomy’s forthright head, have accused each other of lying about whether Autonomy was “shopped” to Oracle before agreeing its $11bn sale to HP, at a premium of more than 60 per cent.

Although Mr Lynch has borne the brunt of Mr Ellison’s assault this week, the Oracle chief’s real target is its increasingly bitter rival, HP. Mr Ellison has previously lambasted the HP board for discharging chief executive Mark Hurd last year, who is now Oracle’s president.

The dispute could also raise serious questions for Autonomy with the London Stock Exchange, which requires listed companies to inform shareholders about any serious takeover talks.

At the source of the spat is a presentation given to Oracle management by Frank Quattrone, whose boutique Qatalyst acted as adviser both to Autonomy and in Motorola’s $12.5bn sale to Google, the year’s two biggest tech deals.

“Autonomy was shopped to us,” Mr Ellison told analysts on an Oracle earnings call last week. “We looked at the price and thought it was absurdly high.”

Mr Lynch denied this in an interview with the Wall Street Journal, saying: “If some bank happened to come with us on a list, that is nothing to do with us.”

He went on to reprise his familiar critique of Oracle’s database products, which compete with Autonomy’s “unstructured data” management software.

In its typical splashy style, Oracle hit back at Mr Lynch by issuing a press release late on Wednesday night, accusing the Autonomy chief of telling “another whopper” by failing to mention his April meeting with Mr Hurd and Doug Kehring, Oracle’s head of M&A, in April.

“Either Mr Lynch has a very poor memory or he’s lying,” Oracle said. “After listening to Mr Lynch’s PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr Kehring and Mr Hurd told Mr Lynch that with a current market value of $6bn, Autonomy was already extremely overpriced.”
Mr Lynch immediately returned fire, insisting the meeting was nothing more than a “lively discussion about database technologies”.

“Frank was not engaged by Autonomy and there was no process running. The company was not for sale,” Mr Lynch said.

Oracle then took the unusual step of publishing the full slide deck from Mr Quattrone’s presentation at Oracle.com/PleaseBuyAutonomy, which it said was made with Mr Lynch present.

“After the sales pitch was over, Oracle refused to make an offer because Autonomy’s current market value of $6bn was way too high,” Oracle reiterated.

This prompted Mr Quattrone to wade in with a new twist in the tale.

“The slides Oracle posted publicly were sent by me to Mark Hurd in January, were prepared by Qatalyst and were for the purpose of our independently pitching Autonomy as an idea to Oracle,” Mr Quattrone said. “These slides were not used in our April meeting with Mark and Doug.”

HP said in a regulatory filing that the Autonomy deal could close as soon as Monday if it gets required acceptances from holders representing 75 per cent of Autonomy’s stock.

Crisis Unfolds at H-P Over CEO Following Our Blogpost - Committing Corporate Suicide HP

The stock has been down more than 50% in the last 11 months under Leo's leadership. I am not surprised at all that HP board is finally firing Leo as I had published a blog post a month ago - Committing Corporate Suicide HP holding the board accountable for not only Leo's appointment but also Carly's and Hurd's.

The shareholder dissatisfaction is so high that firing Leo or bringing in Meg Whitman will not turn things around but things could improve from now on with almost any CEO I must admit.  I would also change all board members who should be held accountable for the wrong CEO appointments three times in a row.

Another suggestion I'd have is to get out of the Autonomy deal at whatever cost possible as they had offered ridiculously high premium for a company that was shopping itself around for years.

Eli Lilly in Partnership Talks with Turkish Drug Maker

According to a report in WSJ, Eli Lilly & Co. is in talks to form a partnership with, and potentially invest in, Turkish generic-drug company Mustafa Nevzat İlac Sanayii AS, according to people familiar with the matter, marking the latest effort by a big Western multinational to tap emerging markets for growth.

The talks are at an early stage and it is possible no deal will result. Indeed, industry watchers say there are a number of big Western drug companies that could have an interest in MN Pharmaceuticals, as the company is also known.

Though the talks with Lilly are currently focused only on a minority investment, control of the Turkish company also could ultimately be in play given that strategic buyers often prefer that course. MN is worth about $1 billion, one of the people said.

A spokesman for Lilly didn't immediately comment. An MN representative couldn't be reached.

Drug companies and other multinationals in the U.S. and Europe are increasingly looking east and south for an antidote to Western markets where economic growth is sluggish and which are already saturated with their products.

Last October, Pfizer Inc. agreed to pay 400 million reals ($250 million) for a 40% stake in Brazilian generic-drug maker Laboratório Teuto Brasiliero and the option to buy the rest of the company later. Spirits giant Diageo PLC in February agreed to acquire Turkish spirits company Mey Içki Sanayi ve Ticaret AS for $2.1 billion.

Turkey is a particularly attractive emerging market, given its large and increasingly wealthy population of more than 70 million people. Apart from a slowdown resulting from the global financial crisis, economic growth in the country has been swift in recent years.

Linking up with MN Pharmaceuticals would give a foreign drug company access to local distribution, low-cost manufacturing and regulatory expertise, not to mention new products. For Western companies, Turkey can also serve as a springboard to fast-growing markets in Asia.

MN, founded in 1923, makes generic drugs such as antibiotics that are injected rather than taken as pills. For MN, inking a deal with Lilly or another big Western drug company could give it access to a vast foreign distribution network.

Both Lilly and MN have lined up advisers in advance of a potential deal. Besides a foreign drug company, it is also possible MN could sell a stake to a Middle Eastern sovereign wealth fund, one of the people said.

Indianapolis-based Lilly, which makes products including the cancer drug Erbitux and Cialis for erectile dysfunction, has done a series of smaller acquisitions in recent years to augment its portfolio.

Lilly hasn't done a major deal since 2008, when it agreed to buy biotech concern Imclone Systems for $6.5 billion.

Fumbling the Future of A Once Great Industry - HP, Canon, Ricoh, Lexmark, Xerox and Kodak

This week's Businessweek article "For Kodak Change Isn't Instamatic" talks about Kodak's CEO Perez as he tries to bring digital revival into focus. The timing of such a massive turnaround is a bit off.  In Kodak's case however, better late than bankrupt.

In the past I have criticized Kodak for being too slow and too scattered to successfully pull it all together. One thing I must give Antonio Perez is his consistent leadership and sheer determination to stick to his plan despite all criticism from shareholders and Wall-Street.

Given once-in-a-life time chaos and disarray in the Document Industry, Kodak and particularly its leadership team suddenly look pretty good.

By a historic mistake, Canon just watched Ricoh snap IKON, 40% of its US business.  They did not even fight.  Just watched it happen and lost forever. Their response was even worse: buying another irrelevant box company Oce and turning all MFD distribution exclusively to HP. Canon will never be the great samurai once it was fighting passionately to win against Xerox back in the 70s.

HP has became even worse now - chaotic & suicidal with the new CEO Leo. You may want to read my blog post on HP's latest misfortunes and decide for yourself.  I hear that Leo may be selling the printing business next following PCs.

Ricoh bought IKON - a loose federation of once independent dealers. Prior to acquisition, IKON was itself painfully trying to become one integrated company. The buyout brought too much burden on a Japanese company that always managed coercively from HQs in Tokyo. Other than buying IKON, they largely missed out on the industry's services-led transition into consulting and managed print services (MPS). Recently, they fired the head of Americas. I hear a lot of talent has been leaving. Japan's old miracle of doing it "better faster cheaper" simply does not help you with services where talent and minds talk and win business. Not equipment nor factories nor kaizen....

One should not forget Lexmark, another IBM spin-off offering good technology with successful vertical solutions marketing. When the industry started consolidating at a rapid pace, Lexmark was one of the obvious printer companies to merge with. Curlander who has been the Chairman since then and his board repeatedly turned them down stating that Lexmark can continue propser and grow on its own. I will let shareholders do the math here. Now that the music has stopped, Lexmark is suddenly finding itself with no partner, limited resources, near-empty pockets in a brutally commoditized over-supplied industry desparately fighting against giant competitors. Sort of like Don Quixote fighting windmills!

And finally my old company Xerox; Under Ursula Burns, they placed two big bets and bought Global Imaging and ACS.  By doing so, they publicly announced the world the old Xerox did not in fact know how to manage or execute or build growth. Why? Global Imaging is being managed separately. Xerox Global Services has reverse-merged with ACS. Just when you think it can't get any worse, Ursula is now selling off engineering. Yes, once ran and led by engineers, the mighty Xerox is now selling off engineering! In a world where "Companies That Are Built To Last" are fighting for intellectual property, R&D, creativity and top talent, Xerox first sells off PARC. Then the entire engineering group.

I would say Kodak suddenly looks pretty good among its peers! When you have competitors like these, I would say to Antonio, just stay focused keep executing as fast as you can.