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PRIVATE EQUITY
IN TURKEY
YASED Conference
November 9, 2005
Kerem Onursal
VP
Turkven is an independent Private Equity Fund focused on Turkey
FUND OVERVIEW
Local know-how
and network
USD44 million
Source: Turkven
Global know-how
and track record
USD10 billion
1
Turkven is an independent Private Equity Fund focused on Turkey
FUND OVERVIEW
We have equity
and preferential access to
long term debt
Local know-how
and network
USD44 million
Global know-how
and track record
USD10 billion
Our Shareholders
Source: Turkven
2
Turkven is an independent Private Equity Fund focused on Turkey
FUND OVERVIEW
We have equity
and preferential access to
long term debt
Global know-how
and track record
USD10 billion
Local know-how
and network
USD44 million
Our Shareholders
Our Portfolio
III
Source: Turkven
IV
…
X
3
We invest in companies to grow them.
SMART MONEY
Deal partner
Entrepreneur Shareholder
Deal Type
Expansion Capital
 Turkven provides capital for growth and our portfolio companies become partners
of IFC, FMO, DEG and EIB, important sources of long term debt
Source: Turkven
4
We invest in companies to grow them.
SMART MONEY
Deal partner
Entrepreneur Shareholder
Deal Type
Expansion Capital
 Turkven provides capital for growth and our portfolio companies become partners
of IFC, FMO, DEG and EIB, important sources of long term debt
Passive Shareholder
Share Sale
 Turkven can buy the shares of passive shareholders and strengthen the
shareholding structure of the company
Source: Turkven
5
We invest in companies to grow them.
SMART MONEY
Deal partner
Entrepreneur Shareholder
Deal Type
Expansion Capital
 Turkven provides capital for growth and our portfolio companies become partners
of IFC, FMO, DEG and EIB, important sources of long term debt
Passive Shareholder
Share Sale
 Turkven can buy the shares of passive shareholders and strengthen the
shareholding structure of the company
Professional Manager
Management Buy-Out & Buy-In
 Turkven can provide funds to professional managers who would like to buy their
companies (“management buy-out”) or become a shareholder and top executive
in another company (“management buy-in”)
Source: Turkven
6
We invest in companies to grow them.
SMART MONEY
Deal partner
Entrepreneur Shareholder
Deal Type
Expansion Capital
 Turkven provides capital for growth and our portfolio companies become partners
of IFC, FMO, DEG and EIB, important sources of long term debt
Passive Shareholder
Share Sale
 Turkven can buy the shares of passive shareholders and strengthen the
shareholding structure of the company
Professional Manager
Management Buy-Out & Buy-In
 Turkven can provide funds to professional managers who would like to buy their
companies (“management buy-out”) or become a shareholder and top executive
in another company (“management buy-in”)
Conglomerates or State
Spin-Offs
 Turkven buys majority (up to 100%) stakes in non-core companies from
conglomerates through “spin-offs”
Source: Turkven
7
We invest in companies to grow them.
SMART MONEY
Deal partner
Entrepreneur Shareholder
Deal Type
Expansion Capital
 Turkven provides capital for growth and our portfolio companies become partners
of IFC, FMO, DEG and EIB, important sources of long term debt
Passive Shareholder
Share Sale
 Turkven can buy the shares of passive shareholders and strengthen the
shareholding structure of the company
Professional Manager
Management Buy-Out & Buy-In
 Turkven can provide funds to professional managers who would like to buy their
companies (“management buy-out”) or become a shareholder and top executive
in another company (“management buy-in”)
Conglomerates or State
Spin-Offs
 Turkven buys majority (up to 100%) stakes in non-core companies from
conglomerates through “spin-offs”
Banks
Recapitalizations
 Turkven works with banks on the “recapitalization” of companies with borrowings
Source: Turkven
8
We are meeting 15 new companies from all sectors every month,
and select those with strategic exit potential.
TARGET INDUSTRIES
Industry
•
•
•
•
•
•
•
•
•
•
•
•
Comment
•
Logistics
•
Automotive Parts
•
Business Services •
Food and Beverage •
Durable Goods
•
Packaging
•
Chemicals
•
Construction Mat.
•
Media
•
...
•
Start-Ups
•
Pharma
Source: Turkven
Generic manufacturers with market share
3PL services
System manufacturers
Services to blue-chip clients
Strong brand and distribution
Component manufacturers
High end food packaging
Focused players with high market share
Focused players with high market share
Radio, Outdoor, Services
...
Only proven
management teams
9
We are meeting 15 new companies from all sectors every month,
and select those with strategic exit potential.
TARGET INDUSTRIES
Industry
•
•
•
•
•
•
•
•
•
•
•
•
Comment
•
Logistics
•
Automotive Parts
•
Business Services •
Food and Beverage •
Durable Goods
•
Packaging
•
Chemicals
•
Construction Mat.
•
Media
•
...
•
Start-Ups
•
Pharma
Source: Turkven
Generic manufacturers with market share
3PL services
System manufacturers
Services to blue-chip clients
Strong brand and distribution
Component manufacturers
We invest
USD5-50 million of equity
per deal
High end food packaging
Focused players with high market share
Focused players with high market share
Radio, Outdoor, Services
...
Only proven
management teams
10
We are meeting 15 new companies from all sectors every month,
and select those with strategic exit potential.
TARGET INDUSTRIES
Industry
•
•
•
•
•
•
•
•
•
•
•
•
Comment
•
Logistics
•
Automotive Parts
•
Business Services •
Food and Beverage •
Durable Goods
•
Packaging
•
Chemicals
•
Construction Mat.
•
Media
•
...
•
Start-Ups
•
Pharma
Source: Turkven
SIZE DOES MATTER !
Generic manufacturers with market share
3PL services
System manufacturers
Services to blue-chip clients
Strong brand and distribution
Component manufacturers
We invest
USD5-50 million of equity
per deal
High end food packaging
Focused players with high market share
Focused players with high market share
Radio, Outdoor, Services
...
Only proven
management teams
11
Private equity investment in Turkey have been negligible,
at a rate of 2 investments per annum at USD8 million per deal.
HISTORY OF TURKISH PRIVATE EQUITY
PE Firm
First Deal
Last Deal
$m
Deals / Exits
Nomura*
1995
1998
< 20
4/4
Agri, Chem, IT
Merrill
1999
1999
< 30
2/1
Retail, Manuf.
BofA*
2000
2000
< 20
1/0
Retail
Citi VC*
2000
2000
<5
1/0
Food
Saffron*
1999
2000
< 10
3/1
IT, Fin Ser, Oth.
ComCap*
2000
2000
< 10
1/0
Packaging
AIG
2000
2001
< 30
3/2
Media, Sat. Com.
IS VC
2002
2004
< 10
4/0
IT, Retail
Turkven / Advent
2003
2004
< 30
2/0
Food, Bus Ser
Soros
2003
2003
< 15
1/0
Food
180
22 / 8
Total
Industry
* Currently not active
Source: Turkven Private Equity
12
Private equity investment in Turkey have been negligible,
at a rate of 2 investments per annum at USD8 million per deal.
HISTORY OF TURKISH PRIVATE EQUITY
PE Firm
First Deal
Last Deal
$m
Deals / Exits
Nomura*
1995
1998
< 20
4/4
Agri, Chem, IT
Merrill
1999
1999
< 30
2/1
Retail, Manuf.
BofA*
2000
2000
< 20
1/0
Retail
Citi VC*
2000
2000
<5
1/0
Food
Saffron*
1999
2000
< 10
3/1
IT, Fin Ser, Oth.
ComCap*
2000
2000
< 10
1/0
Packaging
AIG
2000
2001
< 30
3/2
Media, Sat. Com.
IS VC
2002
2004
< 10
4/0
IT, Retail
Turkven / Advent
2003
2004
< 30
2/0
Food, Bus Ser
Soros
2003
2003
< 15
1/0
Food
180
22 / 8
Total
* Currently not active
Source: Turkven Private Equity
Industry
Turkey’s PE industry
needs success stories
13
Turkey has growth, but the informal economy and valuation
expectations put a damper on the number of deals done.
DOING DEALS IN TURKEY - 2005
Key Reasons to Invest
 Dynamic, high growth economy
 Availability of companies and management
Source: Turkven

14
Turkey has growth, but the informal economy and valuation
expectations put a damper on the number of deals done.
DOING DEALS IN TURKEY - 2005
Key Reasons to Invest
 Dynamic, high growth economy
 Availability of companies and management

Open issues
 Economic volatility
 FDI to enable strategic exits
 Valuation levels
A predictable
EU accession path will mitigate
some issues
 Availability of leverage for buyouts
Source: Turkven
15
Turkey has growth, but the informal economy and valuation
expectations put a damper on the number of deals done.
DOING DEALS IN TURKEY - 2005
Key Reasons to Invest
 Dynamic, high growth economy
 Availability of companies and management

Open issues
 Economic volatility
 FDI to enable strategic exits
 Valuation levels
A predictable
EU accession path will mitigate
some issues
 Availability of leverage for buyouts
Key Reasons NOT to Invest
 Large informal economy distorting
competition and profitability
 Weak judicial system
Source: Turkven
Robust and enforceable
agreements and governance
structure are crucial
16
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
Source: Turkven
17
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
 Unrealistic valuation and control
expectations
 Volatility increases the option value
of being a shareholder and control
Source: Turkven
18
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
 Unrealistic valuation and control
expectations
 Volatility increases the option value
of being a shareholder and control
 Relative scarcity of focused,
pure play companies
 Focused companies may be less
robust in volatile markets
Source: Turkven
19
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
 Unrealistic valuation and control
expectations
 Volatility increases the option value
of being a shareholder and control
 Relative scarcity of focused,
pure play companies
 Focused companies may be less
robust in volatile markets
 Scarcity of companies with
aggressive growth plans
 Leverage and fixed costs are deadly
in crises – adverse selection
Source: Turkven
20
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
 Unrealistic valuation and control
expectations
 Volatility increases the option value
of being a shareholder and control
 Relative scarcity of focused,
pure play companies
 Focused companies may be less
robust in volatile markets
 Scarcity of companies with
aggressive growth plans
 Leverage and fixed costs are deadly
in crises – adverse selection
 Long and complicated shareholder
agreements
 Insufficient minority rights in the
commercial code
Source: Turkven
21
Turkish companies present multiple challenges for institutional
investors.
INVESTING IN TURKISH COMPANIES
Challenge
Explanation
 Difficulty to determine past
performance of companies
 Inflation + Macro volatility
+ Lack of management accounting
 Unrealistic valuation and control
expectations
 Volatility increases the option value
of being a shareholder and control
 Relative scarcity of focused,
pure play companies
 Focused companies may be less
robust in volatile markets
 Scarcity of companies with
aggressive growth plans
 Leverage and fixed costs are deadly
in crises – adverse selection
 Long and complicated shareholder
agreements
 Insufficient minority rights in the
commercial code
IT IS STILL DIFFICULT TO CLOSE DEALS!
Source: Turkven
22
Turkey is becoming more attractive for FDI, but we still have
a long to-do list.
MACRO GOVERNANCE CRITERIA
What matters most?
 Enforceability of legal rights
 Quality of accounting standards
 Predictability and level of taxation
 Administrative efficiency of government
 Effectiveness of banking sector
 Effectiveness of regulatory system
Source: Turkven, Checklist from McKinsey Quarterly, 2001
23
Turkey is becoming more attractive for FDI, but we still have
a long to-do list.
MACRO GOVERNANCE CRITERIA
What matters most?
 Enforceability of legal rights
 Quality of accounting standards
 Predictability and level of taxation
 Administrative efficiency of government
We have
a long list of things
to be done!
 Effectiveness of banking sector
 Effectiveness of regulatory system
Source: Turkven, Checklist from McKinsey Quarterly, 2001
24
Turkey is becoming more attractive for FDI, but we still have
a long to-do list.
MACRO GOVERNANCE CRITERIA
What matters most?
The optimists:
Turkey is an EU convergence play,
there will be further growth!
 Enforceability of legal rights
 Quality of accounting standards
 Predictability and level of taxation
 Administrative efficiency of government
We have
a long list of things
to be done!
 Effectiveness of banking sector
 Effectiveness of regulatory system
Source: Turkven, Checklist from McKinsey Quarterly, 2001
25
Turkey is becoming more attractive for FDI, but we still have
a long to-do list.
MACRO GOVERNANCE CRITERIA
What matters most?
The optimists:
Turkey is an EU convergence play,
there will be further growth!
 Enforceability of legal rights
 Quality of accounting standards
 Predictability and level of taxation
 Administrative efficiency of government
We have
a long list of things
to be done!
 Effectiveness of banking sector
 Effectiveness of regulatory system
The pessimists:
Turkey has a great future and it will
always stay that way!
Source: Turkven, Checklist from McKinsey Quarterly, 2001
26
The FDI flows are driven by a land-grab mentality accompanied by
privatizations.
FOREIGN DIRECT INVESTMENT FLOWS
USD Million
Completed
SELECTED DEALS
Expected
Target - Acquirer
Equity
2005
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Source: Turkven
2006F
2005E
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
GSM License Sale
TEB – BNP Paribas
217
Disbank – Fortis
1.280
Turkcell – TeliaSonera
3.100
Veh. Inspection (TUVSUD)
183
YKB – Uni Credito
1.000
Sekerbank – Rabobank
350
Digiturk – tbd
200
Eregli Steel – tbd
1.000
Turk Telekom – tbd
2.500
Garanti – tbd
3.000
Basak Sigorta – tbd
100
Botas
n/a
Total
3.000-12.000
2006
Tupras – tbd
2.000
Cement – tbd
400
Tekel – tbd
1.300
Telsim – tbd
2.000
Star TV - tbd
150
National Lottery – tbd
500
Tedas - tbd
n/a
Total
5.000-6.000
27
Abdi İpekci Caddesi 23/5, Orjin Han, 80200 Nişantaşı, İstanbul
Tel: +90 (212) 291 56 30 - Fax: +90 (212) 291 56 36
www.turkven.com
28
Over 80% of foreign direct investment is for market share.
STRATEGIC INVESTOR PERSPECTIVE
Goods
Market
Seeking
Services
• Automotive
• Financial services
• White Goods
• Telecom services
• Brown Goods
• Advertising services
• Tobacco
• Logistics services
• Pharmaceuticals
• IT services
• …
• ...
Strategic exit
potential
is higher for firms
with dominant local
market share and
Tariff
Jumping
Efficiency
Seeking
• Asian exporters
• n/a
strong distribution
channels
• Logistical efficiency
Source: McKinsey Quarterly, 2004
• Call centers
29
UNO leads the branded, packaged bread market
and is an attractive target for global players.
UNO IS SHAPING THE INDUSTRY
MAY 2003
2003-2005
35% CAGR
Key facts
 UNO was the first venture backed leveraged buy-out in Turkey
 Turkven-Advent-Doruk bought 100% from Dogus Holding
 The total bread market in Turkey is over USD6 billion,
with less than 1% branded (< USD60 million)
 UNO is the leading packaged bread company in Turkey
5 times larger than the next biggest competitor
 The company grew 100% in yearly sales to over USD30 million
since our investment
is transforming
the bread market
to an FMCG
market, leading
 We have also doubled the number of distribution points and
introduced 22 new SKUs with a new advertising campaign
the industry in
 Mr Hasip Gençer, the Founder of UNO-Doruk, and a serial
entrepreneur acts as the CEO
nutritional value
Source: Turkven
hygiene,
and product range
30
Intercity is Turkey’s largest long term fleet rental
company with over 7000 cars as of H1 2005.
INTERCITY IS GROWING EXPONENTIALLY
Key facts
AUG 2004
2003-2005
75% CAGR
 Intercity has been the biggest PE deal in Turkey
with over USD78 million in equity and long term debt
 The total long term rental fleet in Turkey consists of
35’000 cars today and will grow to 400’000 in the next 10 years
 Long term fleet rental is part of a larger outsourcing trend
world-wide and will continue to grow rapidly
 Intercity leads the sector with 7000 vehicles, the best clients, the
lowest costs and access to cheaper foreign funding
 The company grew from 1200 to 7000 cars in 3 years
 7000 vehicles cost roughly USD140 million
is transforming
the embryonic
fleet rental market
to a
professionally-run
operational leasing
market
 Mr Vural Ak, the CEO and Founder of Intercity is a real
entrepreneur and car aficionado. (Off-road national champion)
Source: Turkven
31
August 20, 2004 – February 18, 2005
Turkven Private Equity
Advent International Corporation
International Finance Corporation
DEG & FMO
Institutional Shareholders
have provided
USD78’550’000
in equity and long terms loans to
Ekim Turizm
Ticaret ve Sanayi Limited Sirketi
The deal was advised by
Dundas & Ünlü, Lexence, DWS Guner, White&Case
Mazars Denge, Hamelink vd Tooren, Houthoff
32
The economic and political stability of Turkey has improved due to
structural reforms and a single party government.
TURKEY’S TRANSFORMATION
USD Billion
300
100%
GDP CAGR ‘94-’04 = 7%
2005
GDP
80%
240
Single Party
60%
180
Coalitions
be a year of
stability ,
Crisis & Reforms
40%
20%
is proving to
120
GDP:
USD280 b
Population:
70 m
Inflation:
8%
GDP Growth:
7%
Inflation
and increased
FDI flows
Source: Turkven
…
2005E
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
1994
0%
60
growth
33
Turbulant times in 2001 and 2002
THE CRISIS AND THE REFORMS
2001-2002
 Feb 2001 - Coalition government collapsed
 USD currency peg and twin deficits
 loss of credibility
 Popular question: Brazil or Argentina?
 Technocrat government passed structural reforms
Transition
from coalition
 Independent Central Bank with inflation target
governments
 Program and USD20 billion package with IMF
to a single
 Clean-up of state banks and weak banks
 Consolidated state budget
party
government
 Fiscal discipline and primary surplus program with IMF
 November 2002 - First single party government in a decade
Source: Turkven Private Equity
34
Stability in 2003 with the help of IMF
STRUCTURAL REFORMS
2003
The government inherited a disciplined and realistic IMF program





 Primary balance +6.5% of GDP
 Inflation target 25% down from 80%
 Increased strategic importance due to Iraq and Afghanistan
The single party
 Low global interest rates supporting emerging market debt
government stuck
 Increased exports to Russia and neighbouring markets
As a result:



to the reforms
and reaped
 Trade deficit dropped
the benefits
 Investments in capital goods increased
immediately
 Inflation slowed down
Source: Turkven Private Equity
35
2004 was the turning point for the Turkish economy
EUROPE?
2004E
 The good …

Inflation on target 9%

GDP grew 10% in while the state sector shrank

000’000 is dropped with New TL (1 USD = 1.4 YTL)

Capital expenditure peaked (23% of GDP)

Cyprus PR success

Tourism boom (up 30%, USD15b revenues)
 The challenges …

Domestic debt real interest rate still at 10% (22% nominal)

Jobless recovery - > Limited consumer demand

Trade deficit of USD30b (Imports 95b – Exports 65b)

Public debt / GDP = 220 / 260 = 85%
Source: Turkven Private Equity
The EU granted a
date to start
negotiations
36
… and may be the ideal form of financing for companies with
significant value growth potential.
Value growth
can come from the top-line
or bottom-line
FINANCING GROWTH
Partnership alternative
Explanation
DEBT
May not be suitable for long-term growth plans as the majority of
debt available is usually short-term, variable rate and assetbacked, requiring a mortgage.
Debt has serious consequences if the business does not perform.
EQUITY
through IPO
IPO is difficult to plan due to the volatility in stock exchanges, is
limited in size and brings reporting requirements. A depressed stock
price is a problem when negotiating with strategic investors.
from STRATEGIC
More appropriate for companies that have completed their growth
and value-creation cycle as most strategic investors will require
majority ownership and control.
EQUITY
PRIVATE EQUITY
Helps company grow faster without liquidity risk
through equity and long term debt support.
Provides negotiating power to portfolio company during
negotiations with customers, suppliers and potential investors.
No control requirement.
Partnership for growth
Source:
Turkven
37