Author: Hartmut Nitschke 27 Oct 2011 | 00:00 | Freshfields partner Hartmut Nitschke (pictured) says Turkey promises to be Europe’s answer to the BRIC economies The recent re-election of Turkey’s Justice and Development Party (AKP) as well as Turkey’s swift convalescence from the global recession and stable political climate are paving the way for an increase in foreign direct investment. Banking, private equity, M&A and privatisation are all areas tipped for major growth. Greece and Turkey may be neighbours, but in economic outlook they are worlds apart. While one battles to keep its economy afloat, the other promises to be Europe’s answer to the BRIC economies. Fuelled by rapid credit growth, Turkey’s gross domestic product (GDP) grew 8.2% in 2010 and the International Monetary Fund (IMF) expects it to grow a further 4.6% in 2011 and 4.5% in 2012. Unlike many of its European counterparts, Turkey’s banking system also avoided a publicly-funded financial bailout during the global downturn. It’s a testament to the sector’s resilience and partly explains Turkey’s growing attractiveness to foreign banks. Some of the Western banks, including ING, Citi and Deutsche Bank, have already entered Turkey and are realising the benefits of maintaining ever-closer ties. The likelihood is that more European banks will follow suit. For example, one of the largest M&A deals saw Spain’s Banco Bilbao Argentaria acquire a 24.9% stake in Turkey’s Garanti Bank for €4.2bn (£3.7bn) in 2010. Improved access to financing will trigger an increase in the scale of projects undertaken in the country. More international banks are interested in acquiring Turkish banks and consolidations in the financial services sector on a domestic and international level will continue to be an area for opportunistic growth. Advising major European banks when they decide to enter Turkey will create many opportunities for law firms. The Turkish Government has signalled it is open to attracting private equity investors through the Investment Support and Promotion Agency of Turkey (ISPAT), its investment agency. Although private equity is short term in strategy, it opens up opportunities for longer-term foreign direct investment by increasing profitability and improving the corporate governance structure in portfolio companies. These factors create a more attractive environment for foreign investors. Private equity deals are already on the rise. A number of high-profile private equity transactions with a variety of European and US private equity houses have taken place in the last five years. After a relatively quiet 2009, the market saw a flurry of deals in 2010 – a total of 24 transactions worth $850m (£539m). More recently, TPG Capital – one of the largest private equity firms globally – sold its position in Mey Icki to Diageo for €1.5bn (£1.3bn), signalling what could be the beginning of many more high-value private equity sell-offs to come. With foreign private equity eying up Turkey, opportunities will naturally follow for law firms. The Government’s healthcare reforms, growing GDP and the continuing need for healthcare mean the sector looks set to gain particular importance and an increase in activity in the year ahead. M&A activity in Turkey is also buoyant. 2010 was a watershed year for Turkey – it recorded the highest number of deals ever and the second-highest deal value since 2005. Total M&A in 2010 was approximately $29bn (£18bn) over 203 deals – five times the deal value and two times the deal volumes recorded in 2009. Sectors likely to attract continued interest include energy, manufacturing, real estate, infrastructure and healthcare. A popular way for foreign investors to enter Turkish markets is by establishing joint ventures (JVs) with Turkish companies. This type of relationship allows foreign investors to benefit from local expertise and knowledge and reduces the risk associated with setting up a new company in a foreign jurisdiction. Domestic companies also gain an established international platform, which can help provide access to financings and expansion opportunities which would otherwise not be available. On the other hand, usually family-owned, Turkish companies have historically experienced less rigorous corporate governance standards, with one majority shareholder maintaining control. The difference between a corporate governance structure of a family-owned Turkish company and its foreign JV partner can create certain problems. JV parties need to address this by clearly defining the corporate governance structure for the JV company. Nonetheless, Turkish corporate law is further ahead than many may believe – it is based on continental European models and incorporates a number of European Union directives. The New Turkish Commercial Code, which will come into force in 2012, aims to improve corporate governance structure by providing provisions ensuring transparency in corporate structures. Privatisations have continued to play a major role in the Turkish economy. In 2010, there were a total of 35 privatisations totalling approximately $14bn (£8.9bn), a vast majority of which have involved the sale of electricity distribution companies. This number has grown considerably from the $2.3bn (£1.5bn) value in 2007. Last year was unique in that all of the privatisations involved domestic Turkish investors and no foreign investors. With increased importance being placed on the openness of the Turkish market, greater foreign investment in certain privatisation assets will no doubt increase this year and next. The privatisation of the motorways and bridges is attracting interest from a number of foreign investors and it is expected to be one of the biggest deals in Turkey in 2012. A large number of other assets are scheduled to be privatised including the National Lottery, sugar factories and Turkish gas distributor IGDAS, among others. The strength of the domestic market and growth potential in a range of areas will increase the number of foreign investors entering Turkey. With this, there is a definite opportunity for international law firms to play a role. Hartmut Nitschke is a partner at Freshfields Bruckhaus Deringer.
http://www.legalweek.com/legal-week/analysis/2119983/growing-economy-ripe-investment-makes-turkey-rich-pickings-global-firms?WT.rss_f=&WT.rss_a=A+growing+economy+ripe+for+investment+makes+Turkey+rich+pickings+for+global+firmsA growing economy ripe for investment makes Turkey rich pickings for global firms
Private equity
Mergers and acquisitions
Privatisations
Opportunities
Thursday, 27 October 2011
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