M&A Updates from Turkey: An Interview with Gamze Çiğdemtekin

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Gamze Cigdemtekin has over 18 years of experience in private practice with a particular focus on domestic and cross-border M&A and corporate finance transactions. He is one of the founding partners of Çiğdemtekin Dora Çakırca Arancı Law Firm (CDCA) and leads the company’s M&A and Corporate Law practice. Turkey-based CDCA is a full-service law firm with offices in Istanbul and Ankara, and a team of 18 lawyers that includes 4 partners. In his interview with CEO Today, Gamze shares her insights into the firm’s M&A and Corporate Law practice and CDCA’s commitment to assisting clients with reaching their business goals.

 

What attracted you to working within the M&A field?

 As a junior lawyer, I was attracted to a career as an M&A and corporate lawyer by the team-focused nature of the role. I also liked the idea of being involved in deals from start to finish, which involves a close working relationship with the client. Over the years, I also realised that being an M&A lawyer contributes greatly to your professional skills – you develop skills like multitasking, flexibility and the ability to quickly identify the key issues in any situation. Given the short and defined deadlines in M&A deals, you may not necessarily have too much time to deal with issues, but you are expected to find the crux in a matter in short order, which is a real skill. Flexibility and the ability to multitask are also important, as you need to be able to manage multiple transactions at once, which could be of a completely different nature.

 

What are the particular challenges of assisting clients with planning their M&A strategy, considering the ever-changing nature of the sector? 

M&A practice requires not only strong legal background in different fields of law, but also market practice, knowledge and business-oriented approach. Some of the issues and patterns could be quite similar from one deal to the other, but we also come across very different and challenging legal problems. These may arise due to different regulatory regimes, they could be sectors specific problems, or a completely unique issue. We try to handle and solve these issues ahead of the planning and structuring for a smooth process. Additionally, the expectations of the clients could be very different. We represent a large variety of clients, such as corporations, private equity, and family-owned businesses. Each client has its own priority and expectations. Some of the clients we represent may not necessarily be familiar with an M&A process. In those circumstances we try to understand the business and commercial priorities of the client and handle the matters accordingly. We also closely follow the global market practice trends and adopt those trends in the most beneficial way for our clients. For instance, in one of our deals, there was a very big gap between the parties’ expectations on a matter. We bridged the gap with a financial instrument that was a new product for the Turkish market. This solution made the deal happen.

 

What have been the trends in the M&A sector in Turkey in the past twelve months?

Turkey has suffered from the attempted coup last year. In this sense, the uncertain political and economic environment has negatively impacted investors. In the past few years, small and middle market transactions dominated the overall M&A activity by deal number; foreign investors’ deal volume and privatisation deal volume were at one of their lowest levels in the past decade; and private equity activity was limited. Private equity firms were rather cautious in making new investments; nevertheless, we have observed certain successful fund raising activities, as well as considerable number of exits.

The investor type remained diversified and we observed investments from financial investors with the involvement of development banks, venture capital firms, investment holdings, family investments, angel investors and private equity funds in various transaction.

According to a report published by the Turkish Competition Authority concerning the M&A activity in Turkey in 2017, the total transaction volume in M&As has decreased in 2017 compared to 2016 from TL 29.2 billion to TL 22.3 billion.

It is noted that the number of transactions has decreased in 2017 compared to previous years as well.

90 out of 184 M&A transactions, were realised among the companies in Turkey, whereas 31 of those were carried out by companies owned by Turkish citizens. The volume of transactions between Turkish parties amounted TL 5.3 billion. There have been 54 transactions between Turkish and foreign parties amounting to a volume of 11 billion TL. Lastly, five transactions with a total deal value of TL 6 billion were carried out between two foreign companies, fully owned by foreign citizens.

Three privatizations were completed in 2017 and they relate to the sale of hydroelectric power plants.

47 Turkish companies were acquired by foreign companies amounting to a total deal volume of TL 15.1 billion.

Foreign investors invested mostly in wholesale and retail, electricity generation and distribution, and manufacturing sectors in Turkey in 2017.

We expect an improvement in the M&A activity this year, especially strategic investors will remain keen on exploring investment opportunities, relying on the long-term potential of the Turkish market.

 

What has been the proportion of cross-border deals when compared to domestic ones?

As noted above 54 M&A transactions were realized between Turkish and foreign parties amounting a volume of TL 11 billion. Five transactions with a total deal value of TL 6 billion have been submitted to the Board, which were carried out between two foreign companies, fully owned by foreign citizens.

47 Turkish companies were acquired by foreign companies amounting to a total deal volume of TL 15.1 billion.

Foreign investors invested mostly in wholesale and retail, electricity generation and distribution, and manufacturing sectors in Turkey in 2017.

 

How are most M&A deals structured in Turkey?

In structuring an M&A deal, the primary focus is usually tax. We work closely with tax advisers to structure a deal in the most tax effective manner which is also legally viable and doable. Also, in some cases, the transactions could involve a structure that emerges from a different jurisdiction, which is not supported by the local law. In most of those circumstances, we review those structures and adapt those with the tools that are legally available under the local law and construct a hybrid model. Therefore, we also strive to keep up with the global legal developments, to be able to find unique solutions for our clients.

 

What would you say are the typical financial risks associated with a merger or acquisition? What potential challenges should businesses in Turkey be aware of prior to embarking on a merger process?

In the M&A deals, target companies should be audited from every aspect, especially in terms of legal, financial and tax matters. Small and midsize companies are mainly family-run businesses. Therefore, their internal control and legal compliance mechanisms may not necessarily be as advanced as big corporations, and thus may not be as transparent. Therefore, a comprehensive due diligence by experienced professional advisors is essential for identifying the risks and mitigating them before execution of a binding agreement. Once all the risks are identified, it is also important to find viable solutions in mitigating these risks.

It is also important for a foreign investor to get familiar with the business culture in Turkey. This would not only help in negotiating a successful deal, but will also help with doing business in Turkey going forward, once the investment is made. It is also essential to become familiar with the legal and regulatory regime ahead of making any investment for a realistic business plan.

 

What does the near future hold for Turkey’s M&A activity?

Although Turkey has been passing through a rocky road in the past few years, we expect a stabilised and normalised political and economic environment, which will hopefully bring the number of deals and encourage the foreign investors for the next years. As the Government’s priority is focused on the economic reforms now, these efforts started to show early signs of recovery by number of activity in the growth rate, as well as the number of activity in the M&A. We expect an improvement in economic activities in Turkey and in number and volume of M&A activity.

 

Website: http://cdahukuk.com

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