It wasn’t long ago Turkey was one of the world’s hottest private equity markets. As the West faced financial meltdown, the country’s rapid economic growth and young population made it the perfect package – risky enough to offer good returns, but not that risky.
In 2008 BC Partners bought half of the country’s largest supermarket chain Migros, a $3 billion business, while Cinven, TPG and KKR all closed sizeable deals over the next few years. In 2008 Advent launched the €1 billion Central and Eastern Europe IV and in 2010 set up an office in Istanbul.
And then, not much. Advent closed its office in March 2013 having not completed a single deal, with Carlyle closing its own outpost in October 2014. KKR sold its only asset, a shipping company, in July 2014 and hasn’t been back.
Outsiders looking to put large amounts of capital to work struggled in a market dominated by medium-sized, often tricky, deals involving founder-owners. And as western markets recovered, the heightened economic and political risk of investing in Turkey became less easy (or necessary) to stomach.
Domestic firms and smaller foreign players have, however, done good business. Stage Capital owns the country’s largest contract pharmaceuticals manufacturer Birgi Mefar. This industry benefits from a “localisation policy”, which ensures manufacturing services stay in Turkey, making it a high-growth, low-risk investment. Foreign entrants have not done enough to understand the Turkish market or why it is a good place to invest, says partner Mete Ikiz.
“You need to be present and your people in Istanbul need to be local,” he says. “And there should be people that are authorised to source, exit and monitor deals. Turkey is not easy. Turkey is not the West. It’s a country with very different dynamics.”
Kerem Onursal, director at the largest domestic private equity firm Turkven, expresses similar sentiments. His firm has made three exits in 2017, one of which was for 9x money. Conditions for foreign investors are ostensibly good, with no restrictions on foreign ownership and no currency controls. It’s just a question of application.
“If you asked me to go to China and do a deal, I wouldn’t know how I would start…”