Turkey is poised to see the pace of takeovers slow by 50 percent as the government struggles to contain a corruption scandal that has roiled currency and equity markets.
The value of deals in Turkey announced this year may fall by half from 2013, when companies led $17.5 billion of takeovers, Kerim Kotan, managing director of Pragma Corporate Finance, which worked on 11 transactions last year, said in an interview. That would bring M&A to the lowest since 2009, when dealmaking totaled $5.2 billion, data compiled by Deloitte show.
The arrests of the sons of three government ministers amid a widening graft probe and the Federal Reserve’s decision to cut its $85 billion-a-month bond-buying program are threatening growth and political stability in an economy that has grown 5 percent annually under Recep Tayyip Erdogan’s decade-long premiership. Erdogan, who has called the probes an attempted coup, replaced 10 ministers in his 26-member cabinet last month and faces local elections in March.
“The tsunami effect of the current crisis from 2013 will continue to leave its mark,” said Kotan, who is based in Istanbul. “Sellers will rather wait around for higher multiples than what buyers will be willing to pay.”
Enterprise valuations of Turkish companies may shrink by as much as 30 percent this year, from an average of 12 times earnings before interest, tax, depreciation and amortization in 2013, said Basak Vardar, a corporate finance partner at Deloitte’s Turkey unit, in a news conference Jan. 9.
“A volatile currency and stock market, a public war among the top political figures in the country directly undermining the last decade’s political stability and the questioning of the independence of our judicial system are not the best backdrop for M&A,” Kotan said.
The lira has tumbled 8.2 percent, the most among emerging markets, since the investigation started Dec. 17. The Borsa Istanbul 100 Index (XU100) has slumped almost 11 percent while yields on two-year local currency bonds traded at 10.04 percent, second only among emerging markets to Brazil.
Turkey accounted for about 12 percent of deals in eastern Europe last year, as purchasers including Germany’s Allianz SE (ALV) and Japan’s Panasonic Corp. (6752) acquired assets in the country, according to data compiled by Bloomberg. Allianz paid $987 million for insurer Yapi Kredi Sigorta AS (YKSGR) and its life and private pension unit in March, while Panasonic acquired Viko, a maker of plugs and sockets for $460 million in October.
Among the companies that may be sold this year are shipping company U.N. Ro-Ro Isletmeleri AS, drugmaker Sanovel Ilac Sanayi & Ticaret AS (DOAS), food retailer Migros Ticaret AS (MGROS), and national lottery company Milli Piyango, according to Gokce Kabatepe, an M&A banker and a managing director at Raiffeisen Investment in Istanbul.
Sanovel co-owner and board member Zafer Toksoz didn’t reply to calls seeking comment, while Migros sales process is being carried out by the owners, a company official said, declining to be named because of company policy. U.N. Ro-Ro Chief Executive Officer Sedat Gumusoglu declined to comment.
The turmoil is “seen only as a bump in the road” for companies looking to acquire Turkish assets, Kabatepe said in an interview. Private equity firms may wait until the second half of the year “for a probably more stable environment” before starting to invest, he said. Raiffeisen worked on $5.5 billion of deals in 2013 in Turkey, he said.
BlackRock Inc. (BLK), the world’s biggest money manager, said late last year it’s seizing an opportunity to buy Turkish stocks after the turmoil drove down prices.
“We are constantly being asked about how politics will affect the economic and investment environment,” said Husnu Dincsoy, a partner and head of advisory services at PricewaterhouseCoopers unit in Istanbul, in an interview. “But we are not pessimistic. The interest in Turkish assets among foreign investors is continuing.”
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