KPMG Turkey M&A Advisory announces “KPMG Zoom: Mergers and Acquisitions Trends” Report for the first time this year. According to the report, which covers M&A activities for 2019, there were no significant changes in terms of the number of mergers and acquisitions around the world compared to the previous year. On the other hand, the volume of transactions declined as opposed to an increasing number of transactions in Turkey. The total volume of transactions with disclosed values amounted to USD 2.9 billion. The estimated total transaction volume, with the addition of transactions with undisclosed values, is stated to be USD 4.5 billion. Transaction volumes are expected to increase as the economy gradually improves and optimistic expectations for 2020 persist.

Musfik Cantekinler

Economic anxieties set the agenda for 2019

In 2019, which was marked by global trade wars, political uncertainties and continuing security problems, economic issues were on the top of the world’s agenda. The ongoing global trade war between the US and China, the slowdown in global economic growth, the interest rate cuts by the Fed as a result of these uncertainties and the uncertainties surrounding the UK’s exit from the EU were the highlights of 2019. In addition to the global agenda, domestic political and economic developments had an impact in Turkey on the appetite of investors and the volume of transactions.

According to the report, M&A activities in the world in 2019 was almost similar to that of the previous year. In Turkey, due to the lack of transactions of one billion dollars and above, the volume of transactions decreased while the number of transactions increased compared to 2018. The total volume of transactions with disclosed values amounted to USD 2.9 billion in 2019. 

In 2019, the building and construction sector ranked first in terms of volume, while the technology/media and telecommunications sector stood out in terms of the number of transactions

In terms of the volume of transactions in 2019, many sectors have lost momentum compared to 2018 and the previous years. The building and construction sector stood out with its transaction volume while the technology/media and telecommunications sector came to the forefront due to the highest number of transactions. The largest transaction in the building and construction sector was the acquisition of Yavuz Sultan Selim Bridge (YSS) and Kuzey Marmara Highway (KMH) Enterprises by the consortium of state-owned Chinese companies for USD 688.5 million. For the technology/media and telecommunications sector, which accounts for the highest number of transactions, the acquisition of iyzico by PayU for USD 165 million has been the main highlight.

Transactions worth of USD 98 million by financial investors

Financial investors carried out 41 transactions in 2018, with the share of the transaction volume they created accounting for 3 percent of the total transaction volume. Transactions by financial investors, totaling 78 transactions in 2019, maintained their share of the total transaction volume. The acquisition of minority shares in Sanovel by York Capital and several other international funds was one of the most important transactions by financial investors in 2019, although the value was not disclosed. Similarly, in May 2019, the acquisition of 100% shares of Paraşüt by Mikro and Zirve, owned by Turkven, stood large among financial investment transactions, although the transaction value was not disclosed.

Foreign investors edge out domestic ones

Similar to previous years, the number of mergers and acquisitions carried out by foreign investors in 2019 accounted for 35 percent of all transactions, totaling 83. On the other hand, foreign investors accounted for 76 percent of the total transaction volume in 2019, with a total transaction volume of USD 2.2 billion. In addition, foreign investors were behind eight of the top 10 transactions in 2019.

Public sector weighs in on value creation

In 2018, the privatization of sugar factories and some hydroelectric power plants owned by EÜAŞ resulted in an uptick in public sector transactions. Value creation in the public sector has been targeted with a new wave of privatizations under the New Economic Program in 2019, as well as the private management contract processes and other strategic steps of Turkey Wealth Fund (TWF). For example, although it is not considered a typical M&A transaction in the report, the private management contract process by TWF in 2019 for the organization of the National Lottery games, and the tender process opened by the Spor-Toto Organization for the management of fixed-odds and joint betting games by private legal entities were among the most notable publicly funded transactions of the year. Turkey Wealth Fund increasing its presence in the Borsa Istanbul by acquiring EBRD shares and the sale of Adabank by the Savings Deposit Insurance Fund of Turkey (TMSF) were other notable publicly funded transactions this year.

Positive outlook for 2020 remains

Optimism still reigns over mergers and acquisitions in 2020. The low interest rate policy of the central banks, the foreign currency valuation of Turkish assets below historical averages and the relative restoration of the economic indicators following a raft of recommendations and measures announced within the scope of the New Economic Plan may increase investor appetite. Besides, increased global trade disputes and the economic slowdown, possible US sanctions, political uncertainty and security issues in Turkey’s neighboring countries are all considered downside risks.

According to the report by KPMG Turkey, the industrial manufacturing and automotive, energy and natural resources sectors are expected to be the prominent sectors in 2020.

The factors that may increase the transaction volume include TWF’s investments in projects related to petro chemistry, mining and power generation from domestic sources, the merger of public insurance companies under Turkey Wealth Fund in line with the strategic objectives and the beginning of sales processes for companies transferred to TMSF.

Müşfik Cantekinler, Head of KPMG Turkey Advisory Services: “We assume that economic and regional developments will set the pace for the investment climate in 2020. Although 2019 has been a weaker year in terms of FDIs and M&A activities, we foresee that 2020 will be a positive year and transaction volumes are to increase gradually.”