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Turkey M&A Outdoes BRICs as Economic Boom Attracts Goldman Sachs, Diageo

Turkey is having its best year for takeovers since 2008, recording better growth than any of the largest emerging markets as Europe’s fastest-expanding economy lures buyers from Diageo Plc. (DGE) to Goldman Sachs Group Inc. (GS)

The value of transactions involving Turkish targets has increased 59 percent annually to $8.8 billion, the highest level since Lehman Brothers Holdings Inc. failed in September 2008, according to data compiled by Bloomberg. Deals dropped this year in Brazil, India and China, while mergers and acquisitions grew 50 percent in Russia, the data show.

Turkey’s $735 billion economy grew 8.8 percent in the second quarter, faster than India’s and more than four times the euro zone’s expansion, as credit growth spurred consumer demand. The central bank has taken the most aggressive steps in emerging markets this year to guard the economy against a global slowdown, cutting interest rates three times since December while borrowing costs rose in the so-called BRIC nations.

“What has brought Turkey into focus along with BRIC countries is that it combines high levels of potential growth with large size,” said Emre Yildirim, executive director of M&A at JPMorgan Chase & Co. in Istanbul, the leading adviser on Turkish transactions this year, according to Bloomberg data, in response to e-mailed questions. “Turkey is large enough to move the needle for many global companies.”

Photographer: Kerem Uzel/Bloomberg

The central bank has taken the most aggressive steps in emerging markets this year to guard the economy against a global slowdown, cutting interest rates three times since December while borrowing costs rose in the so-called BRIC nations. Close

The central bank has taken the most aggressive steps in emerging markets this year to... Read More

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Photographer: Kerem Uzel/Bloomberg

The central bank has taken the most aggressive steps in emerging markets this year to guard the economy against a global slowdown, cutting interest rates three times since December while borrowing costs rose in the so-called BRIC nations.

Acquisitions

Diageo, the London-based distiller, bought Turkish spirits maker Mey Icki for $2.1 billion in February, while Jersey-based Vallares Plc, an oil investment company run by former BP Plc Chief Executive Officer Tony Hayward, combined with oil field developer Genel Energy International Ltd. in a $2.1 billion all- share reverse takeover last month. Goldman agreed to buy 26.5 percent of power producer Aksa Enerji Uretim AS (AKSEN) for about $450 million, Aksa Chairman Cemil Kazanci said July 25.

While Turkey’s benchmark ISE National 100 Index (XU100) is down 14 percent in 2011, the measure rallied 10.9 percent last month, the best performance among 94 indexes tracked by Bloomberg.

“Despite all the global uncertainties and risks, it seems as if everyone wants a piece of Turkey,” Kerim Kotan, managing director at Pragma Corporate Finance, an Istanbul-based M&A adviser, said in an interview at his Istanbul offices. “Over the past 15 years in investment banking in Turkey, I cannot recall a period when we have been busier.”

Family Businesses

Pragma expects to close eight deals and sign another five by the end of the year, Kotan said. The company, with 23 bankers, is currently working with a foreign energy company seeking to buy assets worth more than $1 billion, he said.

New York-based Cerberus Capital Management LP, whose chairman, former U.S. Vice President Dan Quayle, was in Istanbul yesterday to announce a joint investment initiative with Turkish broker Garanti Securities, said it’s planning about 10 buyouts or stake purchases in Turkish family-run businesses with an equity size of $50 million to $250 million each.

“International investors, especially Europeans, started pursuing Turkish companies from the beginning of the third quarter of 2010 as Turkey is one of the fastest-growing emerging markets,” said Basak Vardar, a partner in the mergers and acquisitions division of Deloitte & Touche LLP in Istanbul, who forecasts deals may reach $18 billion this year. “I am expecting this trend to accelerate into next year.”

‘Core Market’

Next year could be “the year of M&A for Turkey,” according to Sinan Borovali, a founding partner at Karatas Yildiz Borovali, an Istanbul law firm that helped Turkish social gaming developer Peak Games raise an initial round of funding from German venture capital firm Hummingbird Ventures. “Turkey has become part of the ‘core market’ defined by most investment and private equity funds due to its stable banking and well- regulated financial system.”

Private equity funds that invested in Turkey five to six years ago in the first “gold rush to Turkish companies” are also now looking to exit, which should help encourage M&A activity next year, Borovali said.

With concerns growing that the global economy is headed for a recession though, the expansion in Turkey is beginning to slow. The nation, which sends half its exports to Europe, is showing a record current-account deficit. The lira is down 18 percent against the dollar this year, the worst-performer among 25 emerging-market currencies tracked by Bloomberg, even as the central bank spent more than $3 billion since Aug. 5 in an attempt to stem the declines.

The lira gained 0.8 percent to 1.8730 per dollar at 6:00 p.m. in Istanbul. It fell to an intraday record low of 1.9096 to the dollar yesterday.

Slowing Economy

The International Monetary Fund forecasts gross domestic product growth will slow to 2.5 percent next year while the median estimate in a Bloomberg survey of five economists is for a 3.7 percent expansion. The IMF expects 7.5 percent economic growth this year.

“There has recently been a sharp reversal in growth dynamics,” JPMorgan economist Yarkin Cebeci said in an e-mailed report from Istanbul. “Loan growth has lost momentum and consumer sentiment has worsened significantly in recent months.”

Turkey’s foreign-currency debt is rated two levels below investment grade by Moody’s Investors Service, on par with Jordan and the Philippines, while Fitch Ratings has Turkey one level below with a positive outlook. Standard & Poor’s assigned an investment-grade ranking to Turkey’s local-currency debt last week while keeping the foreign-currency rating two levels below.

Yields on Turkish benchmark two-year bonds have dropped to 8.54 percent from 24 percent in October 2008, at the peak of the crisis brought on by the collapse of Lehman Brothers.

Biggest Buyers

Turkish companies were targets in 83 transactions this year, compared with 79 transactions worth $13.1 billion for all of last year, data compiled by Bloomberg show. The average disclosed deal size is $198 million, with 93 percent of the buyers coming from abroad and the biggest foreign buyers are from the U.K., the U.S. and Russia.

The value of deals totaled $23.2 billion in India, $35.9 billion in Russia, $84.9 billion in China and $71.8 billion in Brazil this year, according to Bloomberg data.

Acquisitions are taking place across the economy. Naspers Ltd. (NPN), Africa’s biggest media company, bought 71 percent of discount-shopping website Markafoni for an undisclosed sum on July 7. Vienna-based Verbund AG (VER) and Haci Omer Sabanci Holding AS (SAHOL) offered $1.5 billion to buy a power grid in Istanbul.

Health

Deals in the works include Acibadem Saglik Hizmetleri & Ticaret AS, a hospital chain with a market value of $1.3 billion. Owners Abraaj Capital Ltd. and Turkey’s Aydinlar family said they signed a non-binding joint venture agreement with Khazanah Nasional Bhd of Malaysia in a statement on Sept. 30.

Drugmaker Abdi Ibrahim Ilac Sanayi & Ticaret AS, energy producer Akenerji Elektrik Uretim AS (AKENR) and airport operator TAV Havalimanlari Holding AS (TAVHL) are among others up for sale, according to statements by the companies and people familiar with the transactions.

Turkish mergers and acquisitions are being driven by transactions in power, infrastructure, services, private equity- driven food and consumer retail, and healthcare, Metin Ar, chief executive of Garanti Securities, said in an e-mailed response to questions. Ar is advising Turkey’s asset sales agency on the sale of the gas distribution grid in Ankara, and a Turkish- Italian group on the purchase of roads and bridges.

Turkish banks have attracted some of the country’s biggest M&A deals. Spain’s Banco Bilbao Vizcaya Argentaria SA bought a 24.9 percent stake in Turkiye Garanti Bankasi AS (GARAN), Turkey’s largest listed bank, for $5.8 billion last year, and National Bank of Greece bought lender Finansbank AS for around $4.5 billion in 2006. Finansbank’s market capital, at $4.1 billion, is now bigger than its parent company’s $2.8 billion.

Turkey’s growth helped create “a completely different environment,” Memet Yazici, director of Rhea Girisim AS (RHEAG), the Istanbul-based private equity firm whose stock gained 810 percent last year, said in an interview. “Both private equity and merger and acquisition guys are seeing Turkey as the next hot spot, and I feel like most companies are for sale here.”

To contact the reporters on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net and Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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