Turkey’s State Assets Seen Dominating 2015 M&A in Election YearErcan Ersoy
State-owned power plants, gambling services, gas grids and insurers are set to attract international investors to Turkey in 2015, as the government continues a privatization drive that boosted deals in recent months.
“This year will offer interesting opportunities to foreign investors, and the best of these will come in state-owned parts of the economy,” said Jonathan Friedman, a London-based senior associate at U.S. risk-management services firm Stroz Friedberg.
So far in 2015 non-life insurer Halk Sigorta AS and life and pension manager Halk Hayat & Emeklilik AS have been put up for sale by state-owned bank Turkiye Halk Bankasi AS, the country’s biggest listed state lender, which is working with Citigroup Inc. and Halk Yatirim Menkul Degerler AS.
“In 2015, we will probably see similar volumes to 2014, around $20 billion,” Musfik Cantekinler, head of investment banking and corporate finance at consultancy firm EY in Turkey, said in a news conference Jan. 14. Last year, $22 billion of deals were announced with state assets the target in more than 60 percent of transactions, according to Cantekinler, who expects this trend to prevail.
While there’s no shortage of assets up for grabs, buyers may be cautious ahead of elections in the country, due on June 7. The polls may “signal a turnover among power brokers,” according to Friedman. “President Recep Tayyip Erdogan’s repeated arrests of state officials have hollowed out a number of ministries of their best talent, while those who remain are more cautious than ever in granting approvals.”
For Mehmet Kutman, chairman of Global Yatirim Holding AS, which is planning to sell its port unit in an initial public offering by May, the polls are a “non-event.”
“With the current account deficit being reduced by lower oil prices and a three percent GDP growth, Turkey still offers good investment opportunity for both strategic investors and for financial funds,” Kutman said.
Turkey is selling off assets at a pace that could soon leave its Ankara-based privatization agency sitting idle, Finance Minister Mehmet Simsek said Oct. 17.
The sale of power plants, land, and gambling operations as well as stakes in state-controlled lenders TC Ziraat Bankasi AS and Turkiye Vakiflar Bankasi TAO may happen within one to three years, he said. The government is planning to raise 8.7 billion liras ($3.6 billion) from asset sales in 2015 and 6.8 billion liras in 2016, according to Simsek.
Assets on Sale
“We may see big deals in financial services, entertainment and energy sectors,” said Mehmet Sami, a financial advisory services partner at Deloitte LLP, adding that mid-cap assets will probably be most desirable to investors this year.
Private-equity deals will be prevalent among local firms, Sami said. Turkish buyout firms Actera Group and Esas Holding AS jointly bought U.N. Ro-Ro Isletmeleri AS, a Turkish ferry company from a consortium led by KKR & Co., the Ankara-based competition board said in August. The deal was valued at about 700 million euros ($790 million), people with knowledge of the matter said at the time.
The same two firms are now considering the future of Mars Entertainment, which has started talks with banks to manage a sale of the company, according to people familiar with the situation.
Spor Toto, a soccer-betting company, is among other state-owned assets likely to be offered to investors, along with a horse-gambling company and Istanbul’s car-park company Ispark, as well as some toll-roads and bridges over the Bosphorus strait, EY’s Cantekinler said.
Power plants will also feature on dealmakers’ lists, he added, following on from last year when two of the top three deals in Turkey last year involved the sale of power assets to domestic investment firms, according to data compiled by Bloomberg. In the second biggest deal of 2015 Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, agreed to buy a 14.9 percent stake in Turkish bank Turkiye Garanti Bankasi AS in November for about $2.6 billion, increasing its stake to 39.9 percent.
Turkish companies may also look for assets abroad, following Yildiz Holding AS’s $3.3 billion purchase of United Biscuits Holdings Ltd in November, as they seek to expand sales and bring new brands to the country, said Daniel Cousens, a partner for Linklaters LLP, in a phone interview Jan. 26.
“We are seeing large corporates from Turkey with interest in assets in central and western Europe as well as Russia, Ukraine and some of north Africa,” Cousens said. “Some Turkish groups have reached their maximum potential in home markets and want to seek growth in other markets. For others there may be an opportunity to acquire a strong brand and exploit it in their home market or other markets in which they are already present.”