Mid Europa signals intent with first Turkish deal

Mid Europa Partners has underscored the growing importance of Turkey as a market for private equity with its first deal in the country, ahead of an intended office opening in Istanbul.

Mid Europa Partners, a central and Eastern Europe-focused buyout firm, has sealed its first deal in Turkey with the acquisition of a majority stake in private hospital operator Kent Hospital Group. The firm paid just under €100 million for a 65 percent stake in the business, according to a source close to the firm.

As part of the deal, MEP has agreed to increase its stake to more than 90 percent over time, it said in a statement. The firm has stepped into an existing debt facility, which represents slightly less than a 3x debt multiple to the group’s earnings before interest, tax, depreciation and amortisation, according to a source close to the firm.

The acquisition is the firm’s first deal in Turkey, and lays the foundations for a more formal push into the region, according to Matthew Strassberg, a partner at Mid Europa. The firm plans to open an office in Istanbul within the next 12 to 18 months, Strassberg revealed. Turkish national Kerim Türkmen, a director at the firm currently responsible for Turkish coverage, will eventually head up the new office with two to three colleagues.

Turkey to us has always been an intriguing market

Matthew Strassberg

Strassberg said: “Turkey to us has always been an intriguing market. We have always looked at it as a possible place to do deals, but until about 2005, there has been very little for private equity to do there, due to the availability of domestic family office-type capital. In recent years, it’s become something of a bifurcated market – small, growth capital-style minority deals, or large control buyouts of €1 billion plus which have been followed by the mega funds. It’s a market with very attractive fundamentals, and investment dynamics that are as favourable to private equity as those found in the rest of our core regions.

“We wanted to do a low-risk deal, hence we’ve taken a control position in a quality business and are backing a management team that has a private equity mindset. There was a succession issue at the company, with the founder [Cem Bakioglu] in his sixties and looking to take a step back but still remain involved at the strategic level. It’s also a uniquely ‘clean’ asset, so it won’t require expenditure to improve compliance issues.” 

Kent Hospital Group will act as a platform for consolidation in Turkey’s healthcare sector, Strassberg explained.

“The expectation is that we’ll use the business as a platform. There are currently 420 private hospitals in Turkey, and the largest group represents just over 5 percent of the market, so there’s a huge opportunity for consolidation,” he said.

The sector has attractive fundamentals, he added. “We didn’t want to enter Turkey, which for us is a new market, at the same time as a new sector, so we chose a sector we knew well: healthcare. The dynamics of the healthcare sector in Turkey are very different to those found in Western Europe. There are fewer regulatory constraints on the private healthcare side, so the operators are encouraged to offer any service that the market will pay for. The state reimbursement regime is reasonable, and is managed in a way which ensures stability.”

The deal was financed with capital from Mid Europa Fund III, which is now almost 70 percent invested. Contrary to recent press reports, a source close to the firm said no decisions had been taken with regard to a new fund, adding that internal discussions as to its size, timing and strategy would begin in the fourth quarter this year, before the firm begins contacting investors in the first quarter next year.