London Business School Institute of Private Equity

Ozan Cigizoglu's Blog


It is best to start this topic with a discussion about private equity in emerging markets. Based on results from EMPEA's 2010 survey with LPs, growth of private equity in emerging markets is expected to continue due to a high growth potential of these markets compared to more developed economies. LPs expect emerging market's share of PE commitment to grow as LPs seek exposure to high-growth markets and expect EM PE funds to outperform PE as a whole. IFC has also published an interesting document about their experience with emerging markets and prepared a mythbusters section where they answer common concerns with minority positions, deals with smaller companies, exit prospects and others.

When we get into the specific market, private equity volume in Turkey has shown a steady increase since 2002, following the banking crisis. When discussing private equity in Turkey, it is best to mention the 5 elements below:

  • Favorable investment environment with reservations: Turkish economy has demonstrated solid growth in 2002-2010 and forecasted GDP growth is one of the highest among OECD countries. Strength of the economy was further displayed during the credit crisis where Turkey has performed better than most developed economies in terms of change in debt-to-GDP ratio and GDP growth bounce-back rate from 2009 to 2010. While these are favourable points, common reservations among investors, including private equity funds, are lack of transparency, legal environment and increasing current account deficit

    • Growing volume of private equity transactions: Since 2000, domestic private equity funds have shown an increase in activity which has in turn attracted international buy-out houses. International buy-out houses have entered the market to compete for a number of the country's largest assets as evidenced by TPG's acquisition of Mey Icki. This transaction was followed by KKR's acquisition of Un-Ro-Ro and Bain Capital's acquisition of Migros. Turkey's PE Investment value has increased to USD 2.54 bn, PE investment to GDP ratio to 0.32% in 2008. While this ratio is higher than in CEE/CIS and Latin America regions, it is lower than South Africa and India. Key drivers of growth for the private equity market have been increasing availability of companies (of interest to PE), their challenges to accessing finance as well as improving exit prospects.

    • Abundance of family owned business: Abundance of family owned businesses affect private equity during all stages of an investment. Due to Turkey's capitalist heritage, there are a large number of family businesses; level of institutionalization is not high and succession planning is weak. This environment creates a sustainable pipeline for private equity investor, yet comes with its own challenges.

    • Booming services industry: In Turkey, the services sector has not only been the fastest growing in the past decade, but also has been hit by the economic crisis to a lesser extent than the manufacturing sector. Sector's relative contribution to GDP increased from 51% in 1998 to 62% in 2008. Combined with the high GDP growth rate in Turkey, this equates to an average 30% growth in the past years. Retail has been the dominant sector in Turkey, with 32% of investments by value within 2006-2009. Compared with private equity investments in CEE and Asia regions, share of retail is high in Turkey ( 10% and 9% respectively ). Healthcare has been the second most invested sector in terms of number of deals within the same period. One of the reasons for this is because Turkey's health expenditure per capita is among the lowest in OECD countries and is expected to grow paralleling growth in GDP per capita.

    • Market growth as an important value creation lever: Based on a survey with private equity funds operating in Turkey, market growth has been the most important value creation lever so far and the share is expected to stay about the same in the upcoming years. This finding is confirmed as the investment is mostly concentrated on high growth sector such as retail and healthcare. Importance of leverage is expected to decrease slightly while share of operational improvements is expected to increase in line with global expectations

    There are key challenges for private equity funds operating in the Turkish market, with lack of sector data, increasing multiple expectations from company owners, owner's emotional attachment with their companies as the top 3 challenges.

    For more detailed information regarding the topic, please click here.

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    About me

    Ozan Cigizoglu

    (MBA ( London Business School), BSc, Computer Engineering (Purdue University))

    Director of Santa Consultants

    We would like to introduce our first guest blogger for 2011. Ozan Cigizoglu is an alum, MBA 2007, and now works at Santa Consultants in Turkey. His blog and presentation discusses the rising opportunities for PE in Turkey.