TURKEY: An Introduction to Corporate/M&A

The Rise of Strategic Investors and Surge of Venture Capital Activity

Why strategic investors are on the rise in Turkey 

Global shift on production and supply chains 

In 2022, many companies shifted their focus from global expansion to prioritising the security and resilience of their supply chains, and they do not have the so-called “China-centric” view in supply chains when compared with how it was some years ago. In 2023, companies have tended to identify these dependencies and are resorting to M&A as a means to address those weaknesses in their supply chain models.

Turkey appears as a great option for this shift. Firstly, Turkey is currently not implementing any formal sanctions on Russia, therefore, it is expected to serve as a viable option for companies seeking to diversify their supply chains from Russia, given Turkey’s significant manufacturing capacity. It is noteworthy that, unlike the EU, Turkey has not faced an energy crisis, due to neutral relations with Russia and recent energy-related developments. This naturally creates a competitive market since access to energy and energy prices heavily affect the end-product prices, let alone the advantageous transportation costs which are relatively lower compared to Asia-centric companies, given Turkey’s geo-political position. Another key factor attracting this shift on production and supply chain to Turkey is the cheap and qualified young workforce.

Distressed M&As and opportunities due to the depreciation of Turkish lira

Starting in the last quarter of 2022, distressed M&As represented a more meaningful percentage of M&A volume. Undoubtedly, serious depreciation of Turkish lira will pose one of the most difficult obstacles for Turkish companies in the last quarters of 2023. Unfortunately, our currency experienced significant declines in value against major currencies like USD, EUR, and GBP, especially after presidential elections held in Turkey in May 2023, which raised concerns about the country’s external debt and the ability of businesses to service their foreign-currency-denominated debts. But this actually made the country an increasingly attractive destination for some strategic investors looking for lucrative opportunities.

“Stalking horse” bidder opportunities in restructuring proceedings are likely to be explored by strategic buyers as well during this year, and we are expecting the distressed companies to proactively participate in such proceedings. Restructuring is also expected to be on the rise in 2023, and so is associated M&A activity and strategy.

On the other hand, the Turkish companies buying raw materials domestically and exporting/selling goods to foreign countries right now have an excellent financial situation and they are under the “spotlight” of many foreign strategic investors. As the depreciation makes Turkish goods relatively cheaper compared to goods produced in countries with stronger currencies, this cost advantage enhances the competitiveness of Turkish exports, especially in the EU market. Therefore, we assume that multi-bidder M&A activities related to these Turkish export companies will definitely be on the rise in 2023.

Why Turkish venture capital activity is surging

Track record of Turkish start-up ecosystem 

The Turkish start-up ecosystem has proven itself in the last decade. Before having a presence in the global market, in a short period of five years, this ecosystem has harboured six unicorns (“Tur-corns”), which are Peak Games, Getir, Dream Games, Insider, Trendyol, and Hepsiburada. These continuing success stories demonstrate the established start-ups and push forward innovative ideas and entrepreneurs to join the ecosystem. This track record, combined with a young workforce, provides the venture capitalists with counterparts that are willing to work hard and are open to discussion to promote the establishment.

Incentives for foreign direct investments 

In accordance with Turkey’s foreign investment regulations, which adhere to the principle of equal treatment, companies with foreign capital established under the Turkish Commercial Code are granted the same treatment as companies with domestic capital. This equitable approach enables foreign investors to establish companies with 100% foreign share capital or acquire all shares and/or assets of existing Turkish companies. Consequently, there are no statutory limitations imposed on foreign investors, allowing them to benefit from the same governmental incentives as domestic investors. This favourable environment also facilitates venture capitalists becoming involved in the early stages of start-ups, as they can engage with entrepreneurs from the outset, collaboratively shaping the structure in line with their vision.

Safer approach to depreciation of Turkish lira 

The boom of 2021 and 2022 is still ongoing even though there was a slight decrease in 2023 in the total volume of investments. There is also a slowdown in investments over USD10 million, but the overall number of the transactions is not fazed by such data. This actually demonstrates the main goals and habits of the venture capitalists in Turkey, which aim to create a larger ecosystem. This can also be seen through the decrease in the amount of investment made, with Q1 of 2023 being the least invested period. The depreciation that TRY faced when compared with key currencies could be pointed out as the main driver for the decrease in “volume”. However, the number of deals is not decreasing and the emergence of the “Tur-corns” shows us that, with the nature of venture capitalist investment providing the start-ups with the necessary skills for management and know-how and operating predominantly in the technology sector, the depreciation of the Turkish lira becomes a more tamable risk for venture capitalists.

Recent market activities in Turkey: Done deals & prospects 

To get a good grasp of the recent activities in Turkey, below we have listed venture capital and strategic investor activities in 2022 and expected activity in 2023.

Garanti Bank – BBVA 

This strategic investor deal involved BBVA acquiring a 36% stake in Garanti Bank for a total sum of USD1.4 billion through a voluntary takeover bid and greatly contributed to the notable increase in M&A activity observed in 2022. This transaction stands out due to the rarity of such large-scale voluntary takeover bids in the Turkish M&A market.

Getir – Gorillas 

Another strategic investor deal worth mentioning happened in December 2022 when Turkish grocery delivery start-up Getir acquired its German counterpart Gorillas for a substantial sum of USD1.2 billion. This acquisition marked a significant milestone for Getir, following its successful Series E funding round earlier in the year, which raised USD768 million. This funding round boosted Getir’s overall valuation to USD11.8 billion, positioning it as Europe’s first grocery decacorn.

Stellantis NV – Koc Holding 

Due to a new strategic agreement in March 2023, commercial activities for all Stellantis brands in Turkey will be consolidated under Tofas. Tofas will acquire the entire share capital of Stellantis Otomotiv Pazarlama AS, the Stellantis Turkiye distribution company. As a result, all Stellantis brands available for distribution in Turkey – Alfa Romeo, Fiat, Citroen, DS Automobiles, Jeep, Maserati, Opel, and Peugeot – will be distributed by Tofas. This deal is expected to be one of the highlighted deals in 2023.

Launch of TOGG 

The market launch of TOGG, Turkey’s domestically produced car, in 2023, is set to revive the significance of the automotive industry in terms of potential M&A in Turkey. Industry participants predict that this substantial investment will stimulate higher demand in the automotive spare-parts and supply sector, leading to a consequent surge in M&A activity within these domains.

VRLab Academy – Teknoloji Yatirim AS, TechOne, Lima Ventures, Heaventures and HiVC

VRLab Academy, a local initiative that combines laboratory experiments with virtual reality technology, received an undisclosed amount of investment of over USD11 million.

Metatime – Yildiz Tekno GSYO 

Metatime, a Turkish blockchain start-up offering blockchain-based smart applications, digital products, and hundreds of different services, received USD11 million in seed investment from a group of investors including Halkbank, Turk Telekom Ventures, and Kalyon Ventures, led by Yildiz Tekno Venture Capital Investment Trust.

HotelRunner – 212 

HotelRunner, which develops end-to-end solutions in travel technologies, completed a USD6.5 million Series A investment round. 212, Wix Capital, Founders Factory, Ascension Ventures, DMH, Melih Odemis, Daniel King, Niels Gron, and Gerry Samuels, one of the co-founders of Yemeksepeti and a senior figure in travel technology, participated in the investment round as angel investors.

Effects of earthquakes in the M&A sector 

The devastating earthquakes that occurred on the southeast side of Turkey on 6 February 2023 had a profound impact, affecting nearly 15% of Turkey’s population and resulting in an estimated loss of USD84 billion for the country; almost 10% of Turkey’s GDP in 2022. This year there is a strong likelihood of investor interest in the construction and cement sectors, primarily due to the Turkish government’s objective of swiftly reconstructing the 11 cities impacted by earthquakes. The earthquakes occurring in the eastern region of Turkey have also accelerated urban transformation and building reinforcement projects in the Marmara and Aegean regions of Turkey. These areas, situated near fault lines, are receiving significant attention for infrastructure development and construction initiatives at the moment. On the other hand, the start-up ecosystem was not affected by the earthquakes compared to strategic investor activity. Due to the high-risk, high-reward approach and the resilient attitude of both founders and investors, the main effects of the earthquakes were successfully navigated.