Advent closes Turkish office(2)

The decision by the Boston-headquartered firm – which opened its Istanbul outpost in 2010 – underlines the immediate challenges facing the market, says Deloitte’s Mehmet Sami.

Advent International has decided to close its Turkish office, little more than three years after establishing a presence in the country. 

The global mid-market firm, which first set up shop in Istanbul in 2010, will continue to look at opportunities in the market from its other European locations, it said in a statement.   

“The country continues to have great potential, and we wish to continue to source attractive investments there. However, we prefer to cover the market through our Europe-wide sector-focused approach rather than with a dedicated office.”

The office, which was staffed by three to four full-time employees, according to industry insiders, is to close at the end of March. 

While it didn’t agree any deals after opening the office, Advent has been active in Turkey since 2001, and backed the second Turkish fund ever raised, Turkven Private Equity Fund I, in 2002. Turkven became the exclusive affiliate of Advent in the country after then, allowing for three direct investments to be made prior to 2010, all of which the firm has since successfully exited. These included majority stakes in industrial baker Unmas and furniture edgeband maker Roma Plastik.

The formal relationship between Advent and Turkven ended when Advent opened its Istanbul office.

The Turkish economy is still outperforming other peers, in terms of macroeconomic situation, and Turkish corporates are not leveraged, so there are still some good opportunities for growth capital or buyout funds

Mehmet Sami

“They knew the market, they had screened many projects, were aware of the big players. So the decision to close their Turkish office comes as a big surprise,” commented Mehmet Sami, a partner in Deloitte’s Istanbul office. 

While he did not attempt to explain the specific rationale behind Advent’s move, he said that the very attractiveness of the Turkish economy had prompted many investors to come into the market, potentially increasing competition and pushing up asset prices. 

“The Turkish economy is still outperforming other peers, in terms of macroeconomic situation, and Turkish corporates are not leveraged, so there are still some good opportunities for growth capital or buyout funds. This has brought quite a lot of potential buyers – both strategic and private equity ones – in the market, and because of these, Turkish business owners are now seeking higher valuations.”

Another difficulty, he said, was the extended time it generally took to seal a deal in Turkey. “You’re dealing with families that have never sold any shares in their company. So trying to negotiate a minority contract is not easy.”

On top of which came unanswered questions about general industry performance. The past few years have seen a lot of investments in the country, he said, but only a limited number of exits, making it hard to assess what returns private equity could achieve in the market. 

But despite these immediate challenges, he believed Turkey still offered tremendous potential for private equity firm. “I personally believe that the earnings growth in Turkey, the fact that it is the 16th largest economy in the world, and its progress towards becoming a manufacturing and servicing hub in the region all make it a very attractive place to look for deals.”

According to a Deloitte study on which Private Equity International previously reported, Turkey in 2012 had 259 M&A deals with a total value of $28 billion, a significant increase from the 237 deals worth $15 billion in 2011. This was supported by an increasing involvement of large international buyout firms in the country, with a total of 57 private equity transactions, worth $1.6 billion, completed during the year. 

In September, The Carlyle Group invested in Penti, a Turkish hosiery business, and General Atlantic bought online food ordering service Yemeksepeti.com. A month earlier, Cinven bought a majority stake in Pronet, a provider of alarm systems, whilst Investcorp bought a 30 percent stake in luxury retailer Orka Group in July. 

PEI recently went to Istanbul to conduct an in-depth roundtable with Turkish private equity insiders – magazine subscribers may click here to read the full story.