Turkey’s split personality has often left it caught between two worlds. Some European nations have vocally opposed the country’s attempts to build closer ties with the West. And many of its west Asian neighbours have been wary of the avidly secular state.
Now, the country’s identity is an advantage for deal makers. Turkey doesn’t have the economic baggage of its European neighbours, which are dealing with the sovereign debt crisis. With a relatively stable government, it has also angled for a more prominent role in west Asian, as countries like Syria and Libya continue to face turmoil.
The combination of economic growth and political stability has attracted cash-rich companies looking to make acquisitions. So far this year, deal volume has totalled $10.6 billion, ahead of European countries like Austria, Portugal and the Czech Republic. In 2010, mergers and acquisitions reached $25.6 billion, up from $1.1 billion a decade ago.
“The economic backdrop in Turkey is better than in other European economies and has been rebounding faster,” Emre Yildirim, an executive director at JP Morgan Chase who focuses on Turkish mergers and acquisitions. “It’s a large country that’s growing quickly, so it makes strategic sense for companies to take a look.”
The country’s rapid growth has been a critical factor for foreign buyers. Turkey’s gross domestic product is on track to increase by eight per cent this year.
It also has a growing middle class, an attractive characteristic to Western consumer product companies. The local population totals more than 73 million, almost the same size as Europe’s largest economy, Germany. And the country’s GDP per capita has more than doubled to $10,094 in the last decade, according to the World Bank
Turkey is hardly immune from the usual growing pains associated with emerging markets. Inflation hovers near 10 percent, affecting the country’s overall competitiveness. Reliance on debt-ridden Europe may also start to pinch. Roughly 50 per cent of Turkish exports are bought by countries in the European Union, according to the Organization for Economic Cooperation and Development, a policy research organisation based in Paris.
Still, Turkey “remains one of the good performers,” said Rauf Gönenç, chief economist for Turkey at the OECD. While growth is expected to slip to three per cent next year, the country outpaces its European counterparts, many of which are heading for recession in 2012.
From a deal-making perspective, the region’s troubles may help spur activity, notably in the financial services sector. Over the last decade, European banks, including the National Bank of Greece and UniCredit of Italy, acquired local institutions as part of their debt-fuelled expansion. Now, many of Europe’s banks, which are facing losses linked to their sovereign bond exposure, want to sell assets outside their local markets to meet new capital requirements.
One target could be DenizBank, the Turkish subsidiary of Dexia, the Franco-Belgian bank that received a $5.4 billion government bailout in October. As part of Dexia’s nationalisation, the European bank has agreed to be broken up. Analysts say a number of relatively strong international players, including HSBC, are circling the local operations in Turkey.
Foreign companies are also trying to capitalise on the growing consumer demand.
Earlier this year, Diageo started moving to expand into the emerging markets, aiming to increase its revenue from such economies to 50 per cent by 2015. Turkey was at the top of the list. Each year, more than one million people reach the country’s legal drinking age. And despite the country’s large Muslim population, local authorities encouraged foreign investment, said Andrew Morgan, president of Diageo’s European operations.
“Turkey has attractive GDP growth, is politically stable and has a big population,” Morgan said. “It’s a very important market for us.”
In August, Diageo bought Mey Içki, Turkey’s largest spirits company, from the private equity firm TPG Capital for $2.1 billion. The local business has more than an 80 per cent market share in the local spirit Raki. It also operates roughly 50,000 outlets across Turkey that Diageo now uses to sell its international brands, such as Johnnie Walker and Smirnoff.
Other Western firms also are tapping into the local consumer market. In November, the brewer SABMiller agreed to buy a 24 per cent stake in the Turkish beverage company Anadolu Efes in a deal worth $1.9 billion. To take advantage of rising domestic and international energy prices, the British investment firm Vallares, founded by Tony Hayward, the former chief executive of BP, bought the Turkish oil and gas exploration company Genel Energy for $2.1 billion.
Turkey’s renewed push to privatise state-owned industries has attracted international attention, too. As it has liberalised over the last 20 years, politicians have sold to the private sector stakes in much of Turkey’s energy and telecom industries. To further reduce the financial burden on state coffers, other government-backed businesses, like Turkish Airlines, which is 49 per cent owned by the state, could soon be up for sale.
“Privatisations will include infrastructure, financial and energy assets,” said Richard Evans, a partner at the law firm Allen & Overy, which opened an office in Istanbul .“Right now, Turkey is a much more attractive place to do business than Greece or Spain,” he said.
© 2011 The New York Times News Service
