M&A Deal Drivers: Energy is the next Turkish Delight

It was highlighted that according to government forecasts, Turkey is keen to encourage hydroelectric, wind and solar generation to cut dependence on gas from Iran and Russia and meet power demand that’s growing around 7% annually. The country, which has 47,000 megawatts in total capacity, produces more than half of its electricity from natural gas.


19 May 2011

Asia’s foothold in Europe, Turkey, is modernizing rapidly and due to its secular and Western nature, boasts a vigorous free-enterprise economy. Turkey is the 17th largest economy in the world and the 6th largest in Europe. Turkish M&A deal volumes increased by almost 33% in 2010 to 240 transactions and total deal value was up by an incredible 523% to $26 billion. 23% of all deals by volume and 59% by value were from the energy and power sector. This very sector has traditionally led deal flow in Turkey and comes as no surprise with the country being gifted in energy and mineral resources. I recently attended a seminar to discuss this topic and the future of its growth.

Istanbul played host to the Intralinks and mergermarket event entitled ‘Securing Growth in 2011: Turkey – Discussing M&A Deal Drivers’. The breakfast briefing was a chance for over 50 practitioners from the M&A community to congregate and discuss M&A deal drivers in Turkey. Held at the Sheraton Istanbul Maslak Hotel, the discussion was chaired by mergermarket’s Financial Correspondent in Turkey, Caleb Lauer and the panel consisted of Steinar Bjørnbet, Managing Director at Statkraft Enerji AS; Aydin Ozol, Director at Raiffeisen Investment; Burak Dalgin, Principal at Darby Private Equity; Memet Yazici, Managing Director, Head of Private Equity at RHEA Investments and Philip Whitchelo, VP Product Marketing at Intralinks.

It was highlighted that according to government forecasts, Turkey is keen to encourage hydroelectric, wind and solar generation to cut dependence on gas from Iran and Russia and meet power demand that’s growing around 7% annually. The country, which has 47,000 megawatts in total capacity, produces more than half of its electricity from natural gas. It has also sold off power grids to encourage investments. The Turkish Renewable Energy Law and the Turkish Government’s aim of obtaining 30% of domestic power generation from renewable sources by 2023 provoked a discussion amongst the panel about whether the legislation was enough to support investment in the sector and how it will affect M&A activities in Turkey. However, the legislation guaranteeing prices and incentives for energy from renewable resources may pave the way for $30 billion in wind power investments as the country seeks to meet rising electricity demand.

Another matter discussed was Turkey’s privatization programme which has encouraged domestic buyers to be particularly active in sectors such as Energy and Infrastructure. Domestic buyers were viewed as being better candidates for future privatisations but foreign buyers were not completely dismissed. It was agreed that privatisations would continue to be a key driver of Turkish M&A activity over the next 12 months.

The panel also discussed the development of Turkish capital markets as a potential driver in M&A activity in the energy sector. Philip Whitchelo mentioned the importance of IPOs while both Burak Dalgin and Memet Yazici agreed that a spot market and futures exchanges would play an important role in driving M&A activities. Memet Yazici explained that despite interest and opportunities, private equity funds had not been able to enter the energy sector. He predicted that private equity would come back in Turkey in the next 6 to twelve months.

Overall, I found the discussions to be insightful and encouraging for the country’s economy. I have no doubt that Turkey’s geographic position will continue to be critical in driving the M&A market as buyers from the East use Turkey as a way to foreign markets and buyers from the West come to Turkey’s consumer population with its spending power.

If you’d like to learn more about the M&A activities in Turkey then mergermarket in association with KPMG have just released a report entitled Turkey M&A Outlook: Identifying opportunities in a changing market. You can read it at: http://www.mergermarket.com/remark/article/1354/.