End of an era? Turkish elections could signal return to orthodoxy

Data InsightDealspeak 27 March

End of an era? Turkish elections could signal return to orthodoxy

For more on Turkey's capital markets outlook, please see the ECM Explorer here.

Turkish voters will have a chance to determine the destiny of the country’s economy on 14 May in an election which could have wide-ranging implications for dealmakers interested in the transcontinental country. 

Socially conservative and populist president Recep Tayyip Erdogan – a proponent of unorthodox economic policies – is trailing in the opinion polls by around ten points following a destructive earthquake in February. Meanwhile, the leader of the opposition, social democratic economist Kemal Kilicdaroglu, defends more orthodox positions, including a strong emphasis on energy transition.  

M&A activity in the country, which has a foothold in Europe and a large hinterland in Western Asia, have proved broadly resilient to recent shocks, including consecutive devaluations, forex controls and rampant inflation. The total deal value for 2022 was USD 10bn, following three years of drought, according to Dealogic data.  

The sale of a 55% stake in Turk Telekom [IST:TTKOM] owned by several local banks to Turkey Wealth Fund (TVF) for a consideration of USD 3.2bn was the biggest deal last year. Kilicdaroglu has criticized the 2005 privatization of the stake, which came when Erdogan was prime minister.  

Meanwhile, Dream Games, a mobile games company, raised USD 255m in a Series C round in January 2022, valuing the company at USD 2.75bn. And Marti, an e-scooter and micro-mobility platform, and MNG Airlines, a logistics provider and e-commerce enabler, both announced deals with special purpose acquisition vehicles (SPACs) last year.

One step forward, two steps back 

Despite the good performance in 2022, Turkish M&A activity is far lower than its peak levels of the first half of 2010s when hyperinflation was under control. The combination of the Covid-19 pandemic with unorthodox monetary policies and artificially low interest rates hurt interest in Turkish assets and companies, leading to volatile deal values. 

In 2012, the total M&A deal volume hit USD 16.1bn. At the time, Erdogan’s Justice and Development Party (AKP) was backing liberal and orthodox policies.  

Deal values dropped in 2016, a year that was marked by a failed coup attempt and a crackdown on conspirators and alleged conspirators. Dealogic data shows the value for 2016 was just USD 3.3bn, the lowest level in a decade.  

The total deal value for 2022 is the second-highest since 2016, with a peak in 2018. It is significant that inbound deals constituted 80% of the total value in 2015. This fell to a mere 27.4% in 2022 as hyperinflation returned with a vengeance, killing the buyouts market.  

Turkey’s economic difficulties mean that private equity (PE) firms have struggled to exit companies they bought during the boom years. For example, PE firm Carlyle Group [NASDAQ:CG] has failed to place its 30% stake in Penti, a hosiery, lingerie and swimwear company that it bought in 2012.

Tech potential 

Despite the hard times, the country has perhaps surprisingly developed a strong reputation in tech. In the last couple of years, the country has produced two decacorns (unicorns with a valuation of more than USD 10bn): Getir, a global ultra-fast grocery delivery platform, and Trendyol, an e-commerce marketplace. 

Both have big plans. Getir is in a process to raise new funding in 2023, as reported , while Trendyol had ambitions for a dual listing after reaching global turnover of USD 1bn, its CEO said in a report. Meanwhile, fintechs like Colendi, DgPays and Param could be the next unicorns. Although the former two have their roots in Turkey, they have established their formal headquarters elsewhere.  

The mood in the country appears to be turning against Erdogan's unorthodox policies. However, populists have a poor track record of accepting the peaceful transition of power, so investors interested in the country should probably continue to sit on their hands immediately after the election if Erdogan loses.

Did you see last week's Dealspeak EMEA? 

Not tonight: China turns to African mining deals in response to frosty reception in Europe 

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