“The ones who underestimate experience, pay a high price for inexperience.”
May 2020

Private Capital Transactions in Turkey and Environs Going Forward | 15.05.2020

Online Brainstorming Session-5


Participants; Oktay Aktolun – Senior Partner, PWCAyşegül Dicle Aydın – Managing Partner, Heidrick & Struggles – TurkeyErdal Ekinci – Senior Tax Partner, Esin Attorney Partnership, İsmail Esin – Managing Partner, Esin Attorney Partnership and John Komninakidis – Datasite (Merrill), Vice President EMEA Region and Barış Öney  Founder and Managing Director, Globalturk Capital and EMPEA Turkey Representative.

Highlights of the Session

In this brainstorming session, the participants touched based on the current and future M&A transaction dynamics in Turkey. The collective experience and know-how of the participants exceeds 100 years of working on transactions primarily in Turkey and in the EMEA region.  It was therefore a very informative fact and idea sharing session both for investors and companies / buyers and sellers, where we found it very useful and had a number of takeaways.


A Snapshot of the M&A Value Chain:


Globalturk Capital’s observations as a result of the past 4 brainstorming sessions amongst the private capital community indicated that, the transactions needed a different approach during this pandemic period and going forward. Since most people in the value chain have been working remotely from their homes, investment and exit processes primarily have to be handled thru online means. On-going deals, which have passed the due diligence phase and into the SHA/SPA drafting phase, are mostly moving on. But for the deals not have reached to that stage yet, are being delayed. Most investors think these deals can get delayed for another 3 to 6 months, where the pandemic situation is expected to ease up, but that still is uncertain. This period may take more than a year or two, where many people could still be reluctant to travel and meet person to person. Therefore, many tasks may need to be handled online. The M&A value chain both for sell and buy side, is composed of activities mainly starting with deal origination until a non-binding offer (NBO) is signed, followed by due diligence, transaction agreement drafting and negotiations and post-acquisition/post-merger organization structuring with new human resources and the like.  


Up until signing an NBO, there is a whole area, where mostly M&A advisors deal with to originate and position and work on pre-diligence of the entities. That period was very difficult even before the crisis. Especially in Turkey, most companies especially SMEs were and are not M&A ready. Expert advisors need to work days and weeks on company records, to gather the correct operating and financial data, work on adjustments etc. Lot of e-mailings, face to face interactions are necessary. So how can all this be done remotely, how can deals be originated over online meetings? Not all investors are worried about this point since they think 3-6 months later, this will go back to business as usual and they will continue to meet person to person, but it may not? So, both companies and investors, as well as the advisory community need to work on this area to make deals happen even during such difficult times. The better companies are prepared, the more chance they will have raising capital. Comes September or October, these issues may arise even more, especially when people try to work from plazas and their office buildings. So, we need to work harder and faster on digitalization of companies. 

Digitalization of Companies:

PWC in Turkey initiated an internal IT investment project some 3 years ago to digitalize their company for the PWC employees to be able to work remotely from anywhere. They created many applications, then carried some of their applications to cloud, and moved the datacenter to a well-equipped hosting center in Istanbul, increased the internet infrastructure and powered-up the laptops and mobile hardware. Once they achieved their own digitalization, then they started suggesting this model to their clients (mostly large scale to upper mid-size companies), and assist them in implementing these plans. 

One area to consider in doing so is the regulatory requirements from the institutions like the BRSA, Capital Markets Board and the local GDPR. Therefore, when implementing, the infrastructure is evaluated and refigured to abide by the regulations. Another important phase of this effort is to train employees on these systems for them to be able to use the systems when working remotely. PWC-Turkey has been working on such projects for their clients at the moment. 

Thinking that the crisis period may take more time to end, many companies currently are thinking of reevaluating their operating models, skillsets and infrastructures. Of course, the same standard implementation is not applicable for all industries. Each one needs to be customized accordingly. 

PWC also is introducing new working tools like snapshot, moral, alterics, tablo, powerBI and google g-suite to work from a single source of dataset for the relevant team members. In other words, having a centralized source where everyone can share from at the same time, kind of eliminating everyone working from their own excel spreadsheets and sharing with each other. So many savings can be achieved and data security and quality can be better secured. 

Esin Attorney Partnership, started their digitalization process some 10 years ago to prepare themselves as a better functioning company in the digital world. Along those lines, 5 years ago, they made it a requirement for their employees to work from home 2 days per month as a firm rule. Initially it was thought that, this would adversely affect the efficiency of the employees, but on the contrary it proved to be exactly the opposite. The process allowed employees not only to work from home via sharing emails etc., but thanks to their digital infrastructure, lawyers were able provide opinions to clients via accessing the company library and full datasets. 

Remote working probably will become the new norm for most multinationals and office workers post-pandemic, which will help companies decrease their high rent costs. 

M&A Transaction Volumes in Europe vs Turkey and Suggestions for Companies and Investors:

From an M&A perspective, Esin suggests their clients and companies not to wait for the pre-corona period to come back, which is highly unlikely to happen. And therefore, it is advisable to start their preparations for the new period rapidly. The companies need to learn working and operating remotely as fast as possible, including running the M&A transactions. This is also valid for the investors or buyers. Proper companies who adapt to the new working environment with skilled management teams, have a great chance of receiving investments or attracting buyers. Further, companies who possess reliable data readily available digitally online, will be the winners in terms of conducting M&A transactions. 

It is true that investors could find numerous reasons for not doing deals nowadays, but knowing that the pre-corona period won’t really come back, it is advisable for them also to evaluate investment opportunities as we speak.  It would be important for them to find innovative ways to structure deals now with good companies, which could provide significant returns down the road. Datasite, also was an origination by a retired baseball player, Paul Hartzell, who took advantage of finding new ways of doing things and the digitalizing world many years ago and changed the entire due diligence industry for good.

Six deals, advised by Esinwere closed and signed during the pandemic in Turkey, which also showed the investors’ confidence on the businesses and the country. One of them was a state-owned insurance company with approximately $1 billion transaction value. So, it is suggested for on-going deals to move forward. However, it is also a fact that the number of deals in the pipeline is decreasing. Nevertheless, smarter companies who can attract investors during this period will become stronger after this period and weaker companies may become weaker, so it is definitely important to be on the winning side. Buyers would like to have broader due diligences; they won’t like to put their smart money easily to any company. If companies are ready digitally, then the chances of receiving an investment are increased. Obviously, SMEs that don’t adopt themselves to the new normal won’t be able to raise capital or attract buyers. Because this crisis is not really comparable to any macroeconomic crisis the world has lived thru to date. 

According to Globalturk Capital’s observations, there were encouraging signs from the private equity funds, especially the ones based in Turkey, that they have almost past their fire fighting phase and started looking into new investment opportunities. However, again those are the ones that they have already met prior to corona and have their initial analysis made. They have not yet started on virtual deal originations.   

According to Mergermarket, there were 990 M&A transactions in Europe between 1st of January to 6th of March as compared to 1,455 in 2019-same period, a 32% decrease. According to Datasite, even during these turbulent times, both sellers and buyers have a great instinct to close deals but there is a confidence issue. There is certainly not enough confidence at the moment in EMEA or in Turkey. Dealmakers, not only are struggling with the confidence issue, but also company fundamentals, financials, deal metrics, valuations and the like. But there is a hidden positive factor for confidence building. It all depends on the constructive efforts on both buyers and sellers, allowing plenty of time and access for buyers to run due diligence processes.  This is a key to increase confidence and allow for closings, which is further observed throughout the EMEA region. 

There are many M&A transactions in the pipeline in Turkey today especially at the pre-diligence phase, but the closings may get delayed. This may result in a lesser number of transactions and volumes in 2020. Most of the activity is in the debt restructuring and distressed asset sales, debt financing and equity carve-outs. However, in the second half of the year, M&A transactions may pick-up because historically M&A in Turkey usually picked up in the second half. Transactions usually pick up in the US in Q1, then Europe comes into picture in Q2 and then starting Q3 Turkey and Middle East starts picking up. Therefore, there is optimism in that sense.

New Tools for Diligence:

Datasite is the leading virtual due diligence provider globally and in Turkey, through its flagship due diligence platform “Datasite Diligence” (formerly known as Merrill DatasiteOne). Now they are also focusing on pre-diligence phase with their new innovative platform “Datasite Outreach”. The objective of this new platform is to have the sell-side M&A advisors take better control of their deal marketing from teasers and NDAs, to NBOs and enjoy a more efficient buyer outreach process. Further, this is expected to provide more visibility (a real-time project status) with increased transaction pace and security. Tools supported by AI have been utilized in high prominent deals globally and M&A advisors have been taking advantage of these tools to monitor their entire transaction life-cycle more efficiently. 

Also, very soon there will be a new platform for the buy-side advisors, “Datasite Acquire”, to streamline one-to-one deals. The objective is to speed up all aspects of buyer due diligence and give the seller tightly controlled access to upload and organize relevant deal documents, which is expected to save hours of manually uploading and organizing documents on seller’s behalf.

The pre-diligence phase of the M&A value chain is actually where the deals are agreed and non-binding offers are signed. But to be able to come to that point, it sometimes takes many years of an intermittent process. According to Globalturk Capital, one of the main reasons is poor data quality and preparedness by the companies, especially SMEs. In Turkey it is a huge hassle for the M&A advisors to prepare companies which may take 6 months to a year sometimes, which further is not at all appreciated much by the Sellers and the Buyers for that matter. Apart from the first 500 to 1000 companies in Turkey, there are more than a million SMEs, many of which have very poor data quality and extremely low level of preparedness. But they are good companies, exporters, service providers and the like.

Tax Incentives for M&As:

One important question is that would the Turkish Government promote M&A between the Turkish companies thru various means so the financially distressed SMEs could get acquired by the top 1000 or so companies and can get saved post-corona acute crisis period? This might work well since local companies have a higher chance of knowing each other. Cross border M&As may take more time due to travel restrictions and regulatory barriers. However, Esin predicts that, if travel restrictions may not prolong, foreign companies acquiring SMEs can also prove to be efficient. Either way SMEs need to be smart to take advantage of offers when they happen, though the valuations may not be so desirable as compared to pre-corona period. Such offers may not come back for a long time and therefore, the train should not be missed.

Esin Tax Practice’s observations on the M&A incentives were not so optimistic. The Tax Authority and the bureaucracy, in the recent past was more inclined to look at the tax incentives with a view to promote the Turkish investment environment. But nowadays the Authority seems to be rather distant towards such thinking. For example, there has been a digital tax introduced in the beginning of 1st of March, which brought some uncertainties to the market including double taxation issues for digital companies. Also, there are uncertainties for example on how to account for the expenses during the acquisition process in terms of their deductibility. 

One of the tax exemptions the shareholders of joint stock companies enjoyed to date was that in case they were to sell their shares two years after inception; they were exempt from income tax. Same rule applied for the limited companies being converted into joint stock companies and sold even immediately if the inception date of the limited company was two years or older. The Revenue Administration had many rulings allowing for this exemption for limited companies in the past. Converting limited companies to joint stock companies was a very commonly used operation prior to M&A transactions by the shareholders of limited companies to avoid income tax up until recently. The Tax Authority overruled this in the beginning of last year without any changes in the Tax Law, making the share sales of limited companies quite difficult.

All such practices are indicators showing us low probability in introducing new tax incentives promoting M&A transactions. 

Human Resources and New Ways of Working:

In the past 10 years, Heidrick and Struggles Turkey did 65 assignments for the PE funds with the support of their Global Private Equity Practice. Heidrick’s clients are multinationals, working from home with their advance systems. Office rent seems to have become an unnecessary cost going forward since remote working is as efficient as possible. So, they didn’t have much trouble adjusting to the new normal. 

An accelerating number of companies are talking about working from home even if the pandemic is over.  The Turkish Corporate Market’s DNA is different than the rest of the world. In Turkey, companies are not looking for any C-suite members during this pandemic but prefer dealing with the situation with their existing human resources. They are not comfortable to bring new people in, so they keep working with the current ones, whom may not necessarily be equipped to handle this crisis. 

The private equity community on the other hand, has been working with agile managers in the first place so they are better equipped than the corporates operating in Turkey in coping with the current unprecedented situation. It seems like there won’t be much change in the Turkish senior management scenery this year since FDI and private equity investments are not likely to happen much this year. It would be advisable for the private equity funds to work with HR advisors during the pre-investment phase to assess the HR capabilities and the quality of the resource pool of potential managers.

Globalturk Capital, on the contrary expects an increased M&A activity after summer, especially in line with the supply chain diversification. Like Walmart for example, who has been sourcing its products from China for years, decided to start sourcing also from Turkey, which they never did in the past. Such initiatives are expected to lead to acquisitions in Turkey. So, it is advisable for Turkish companies to get digitally ready for such transactions. 

Heidrick type HR advisory companies, have evolved recently to work side by side with the companies to structuring the resource requirements, organizational changes and how to work in the new world having 4 generations plus a robot working together in the same working environment. The corporate world needs to get prepared for this new normal. But when the global CEOs today were asked, only 17% were aware of such realities. Tomorrow is already here. What consultants were looking for in CEOs in the past have completely changed now; the CEOs of today have to be very different adaptable to the digital era. Therefore, it is advisable to the private equity funds to start working early in the value chain to identify such demanding requirements and high-quality resources to cope with them on a timely manner.

Digital Readiness:

One way to deal with the readiness may be a digital rating of companies with a good rating mechanism. PWC has introduced a service proposition for its clients called the “digital maturity assessment”. It includes the assessment of their culture, their skill set, their infrastructure and applications. Also, it includes the assessment of their business processes, models, as well as comparing them with their competitors in Turkey and abroad. Once the assessment is finalized, then come up with a road map. But it is very difficult for SMEs to go through such an assessment process and implement it. Very difficult to change their mindset and culture as well. 


One of the most difficult things in initiating M&A transactions, even if the sellers or buyers want, is the fees. This even gets more difficult for the Anatolian companies. This is true for large Holding Groups as well. Turkish companies are very reluctant to pay when it comes to fees. All participants collectively agreed that this is a serious obstacle that keeps companies taking a timely action for an M&A transaction even if they desperately need help. So, the deals that could get done, do not happen.    

But this era will be important for the advisors and service providers, where the good ones will thrive and stand out, where many will disappear. And the transactions of the companies, who do not work with expert advisors, most likely won’t happen.

Status of Transactions, Virtual Due Diligences and the Type of Activities:

According to Datasite, there are currently 30 live virtual due diligence projects going on in Turkey, a higher number as compared to the first quarter of 2019. First quarter of last year was one of the worst periods for M&A in Turkey. The number of M&A transactions for the whole 2019 wasn’t so high either. So, in the beginning of 2020, there was a surge of VDRs in the pipeline, where the market was about to pick-up until the pandemic hit. More than 70% of them had already received NBOs prior to initiating VDRs. Majority of these deals are between investors / buyers and large Turkish corporates. Additionally, out of 30, only 20% have put their deals on-hold during pandemic but M&A players are almost ready to restart the due diligence processes following the opening-up of major markets in EMEA. The acute crisis period for Turkey is expected to calm down by mid-August.

According to Datasite’s recent survey 48% of M&A professionals in Turkey estimated the due diligence processes to take place between 3 to 6 months prior to corona crisis, but now 66% think until 2022, it’ll take 3 months, meaning the processes are expected to happen faster and more efficient due to technology advancements. Based on updated data and due to Covid-19, this estimate now refers to 2023. 

Also, in the EMEA region, which includes Turkey, 62 respondents are and will be looking for debt financing as a main strategy. Majority of the decisions, 69%, will be led by the CEOs and CFOs.

Again 40% are looking out for 6-months ahead. Majority of them are focused on their people to work on the employees’ anxieties to calm them down once the acute crisis period is over.

Leadership Requirements in the New Era:

Heidrick shared their findings for the leadership requirements in the new era. The leadership teams need to be in a growth mindset. This means deleting what is learned to date from the mind. So, leaders need to have a fresh mind and be able to capture new things.

Foresightedness is becoming a very important attribute, which walks hand in hand with flexible thinking. Leaders need to be able to see future without a fear and be very adoptable and capture new realities. 

Another important concept is liquid leadership. Letting your employees take the ownership of the strategy and targets, allow them to innovate and take the initiative to push the company forward. 

Failing fast is another attribute, leadership teams should adopt. One needs to understand what works and what doesn’t fast and make the necessary changes. In another word passing thru failures.  

Reverse mentorship will flourish. Older people will start learning from younger people. 

Real-time leadership is also what Globalturk Capital foresees for leadership teams in the future. 



Going forward, not a fast-paced M&A market is expected by the participants. But there will be successful transactions for sure depending on the reasonableness of the players in the value chain. 

Strategic investments are expected to be more than the private equity investments. Diversification of supply chain brings opportunities but it also depends on the Turkish Government and their structural measures. Especially improvements in the rule of law will speed up foreign direct investments including private equity investments. 

Turkey handled the pandemic pretty well and this may create a good business environment going forward but certainly it isn’t going to be easy to come out of this crisis easily. M&A activity may pick up during the second half, where there were record number of virtual due diligences lined up during the first two months of 2020. Companies to adopt new ways of working, enhance their leadership teams with new requirements, make their companies digitally ready both for commercial and for M&A purposes and act smart to take advantage of investor appetite when arises, will come out of this crisis much stronger and be the new winners.  

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