If 2012 was the year when Turkish funds raised a record amount of cash, then 2013 will be the year when this money is put to work.
That’s in substance what Ted Cominos, a partner at Edwards Wildman, and Baris Oney, a founding partner at Globalturk Capital, recently told Private Equity International.
“There’s huge interest in Turkey by the private equity community, and a lot of people are turning over a lot of stones, trying to find opportunities to place money,” Cominos said. “Turkey has a very good outlook for the next five to 10 years.”
The country’s demographic fundamentals remain very appealing, he said. “If you look at most European countries, the median age of their population is in the mid-40s; in Turkey the median age is in the late-20s. It has a very vibrant economy, with a lot of people who are in ‘spending mode’.”
What’s more, said Oney, there’s a lot of dry powder looking for a home in Turkey.
“This year, some of the local funds have collectively raised close to $3 billion of new money, and they’re actively chasing large deals. They will continue to be chasing these deals, because the cash is ready to be deployed”. They would add to the $2 to $3 billion from overseas already looking for large investments in Turkey, he said.
What has held up investment this year has been that most of the biggest Turkish firms are not ready yet to open their door to private equity, according to Oney. As a result, too much money ends up chasing too few deals, pushing up valuations and making it hard to finalise a deal, he said.
Cominos agreed. “A lot of big funds with big minimum tickets are focused on Turkey. These guys have a minimum ticket of $50 million ++. But a lot of deals in Turkey are also done with a ticket in the $10-20 million equity range, and that mid-market range is where there still are a lot of opportunities for growth.”
But both see 2013 as the year when offer and demand will adjust. “There will be more deals done in the mid-market space,” Cominos said.
Another bottleneck for deal activity this year has been the reluctance of many Turkish businesses to consider acquisitive growth, Oney said.
But again, he thinks this could well be changing next year. “We’ve already started to see some Turkish companies looking abroad to acquire foreign targets, and looking into Turkey to acquire other start-up companies. It’s sporadic, but it is starting to happen.”
This is likely be facilitated a number of big family conglomerates looking to sell off their non-core units, Cominos said. “Disposal of non-core assets should provide ample opportunities as families realise that it’s too much of a distraction to have their holding groups focus on non-core areas of business. We’re seeing more of these non-core spin-offs with the sale proceeds being used to fund the core business units.”
Both expected firms to be looking to expand domestically, as well as in the Middle East, Central and Eastern Europe, and central Asia. Sectors such as infrastructure, energy, and fast-moving consumer goods will likely see the biggest transactions, they said.
They also thought that maturing markets would provide a range of possible exit opportunities. “You’ll see some IPOs, I think there’s still some appetite for capital market transactions in Turkey or by Turkish issuers. And I think you’ll see even more secondary buyouts. Turkey is one of the more interesting markets for secondaries: some large funds have allocation exclusively focused on Turkey, and they will be very active buyers,” Cominos said.