Study: Turkey takes off

The country's private equity activity is reaching record levels on the back of a growing economy and increased spending power of the Turkish middle class.

Last year, The Carlyle Group made headlines with its deal to acquire a 30 percent stake in Penti, a Turkish hosiery company.

The firm explained at the time the attractiveness of the deal was due in part to Turkey’s strong and growing economy.

“In the last five to seven years, more shopping centres have emerged. Customers have more money and they increasingly like to buy their underwear and swimwear in established shops like Penti,” Alp Guler, vice-president of Carlyle's MENA buyout team, told Private Equity International at the time.

“After a decade of political and economic instability, Turkey has made a transition. It has a stable political system and a business friendly environment. All sorts of financial products are growing, which will also continue to fuel the debt market. This is a very interesting investment environment for everyone,” he said.

Guler’s sentiments are being echoed by a new report from accounting giant Deloitte, which recently published its annual Turkish mergers and acquisitions review for 2012 showing more private equity deals were done in the country last year than ever before.

Last year, 57 private equity transactions were completed in Turkey, which is the most ever, according to Deloitte’s report. The total deal value was $1.6 billion.

Overall, Turkey in 2012 had 259 deals with a total value of $28 billion, a significant increase from the 237 deals worth $15 billion in 2011.

The promising Turkish market has become a hotspot for private equity investors, according to the report. Successful exits in recent years have further encouraged private equity investors to tap the market. “Several private equity firms, both local and global, have by now adopted a pattern of regular acquisitions in the Turkish market,” the report said.

Growth is one of the key reasons why the Turkish market is attractive, according to Mehmet Sami, a partner and corporate finance team leader at Deloitte. “The Turkish economy, on a relative basis, is one of the best performing economies in the world,” he told Private Equity International.

“Turkey is a growth market – with GDP growth averaging more than 4 percent during the last 20 years, the pace of growth since 2005 is much higher and had reached about 8 percent during 2011. The GDP figures for 2012 are not out yet, but it will probably be a growth of 3.5 to 4 percent, which is more than double the European average,” he said.

In addition, Turkey doesn’t have a leverage problem, compared to its European peers. “Today the total household debt to GDP is around 20 percent compared to over 100 percent in UK for example. The households are not leveraged, corporates are not that much leveraged and the government is not leveraged, which is a good state to be in,” he said.

Turkey had been suffering from high inflation and high interest rates for about 20 years, making borrowing tough for individuals and businesses, according to Sami. With an improving economy, consumer finance became available from 2005 onwards. “Just like in Brazil and Russia, when you move from inflation to a disinflation environment you automatically improve the conditions of the middle class,” he added.

Along with Carlyle, other firms that have been active in Turkey recently include General Atlantic, Cinven and Investcorp. In September 2012, General Atlantic invested in, a Turkish online food ordering service. A month earlier, Cinven bought a majority stake in Pronet, a Turkish provider of alarm systems and in July, Investcorp bought a 30 percent stake in Turkish luxury retailer Orka Group.