Straddling two continents and  serving as a springboard into a third, Turkey is truly a crossroads of the world.
Thoroughly modern, yet rooted in a long history as a major production and trading nation, Turkey’s ace card is a highly strategic location at the eastern end of the busy Mediterranean places it not only as a potential member of the European Union but as a convenient gateway into the Asian, African and Middle Eastern markets, which explains why numerous major international corporations have chosen to base their regional operations there.

Led by managing partner Tolga Ismen, Ismen Law Firm is one of the country’s leading M&A legal practices, also operating in such complementary areas as acquisition finance, competition law, corporate and commercial transactions, real estate and the increasingly important field of environmental law.

With two partners and 18 staff, the firm is headquartered in Istanbul, Turkey’s commercial capital, and has a branch office in the nation’s political capital, Ankara.

“These are difficult times globally but Turkey is faring relatively well,” avers Tolga Ismen, adding, “the Turkish Lira, which created so many instability problems for our country through the years is now very stable and interest rates are low.

“Of course, the major decrease in demand from Europe and the US has had a big impact on Turkish exports but we have enjoyed the benefits of a strong banking system with not one of our financial institutions going into bankruptcy or needing to be taken over by the government.

“The second quarter of 2009 showed some improvements in the economy and this trend appears to have continued in the third quarter, leading me to endorse the views of the experts who predict we will be back on track by the second quarter of 2010 at the latest.”

Of course, the greyness of the global economic scene led to a marked decline in M&A activity, with only a handful of deals going on but, says Mr Ismen: “We are working on five deals at the moment and know of at least another seven or eight deals out in the marketplace. I am convinced we will see at least 10 closings within this year. “Of course, that’s not enough for an economy the size of Turkey’s but it will be a big improvement over the first half of the year. The privatisation of the at-present state owned electricity distribution companies and sugar factories will be added to the list.”

Not only Turkey, but the region seems set on recovery: “Dubai still has major problems but it seems that investors from across the Middle East are getting back on track. Of course, oil prices were helping in this up until the recent cuts but more important is a prevalent mood that now, at the bottom of the market, is a good time to invest to ensure strong future returns,” comments Mr Ismen.

“We are currently working on two deals with investors from the Gulf that are close to closure and I know of another two other serious deals in Turkey that also involve heavy investment from the Gulf.

“Dealing with such people is markedly different from working with Europeans and Americans. Investors from the GCC region are all too well aware of their weakness when its comes to the human resources required to put a sensible deal together and consequently they rely heavily on external advisors like ourselves.

“For us, this dependence is both a blessing and a curse. It’s good because they appreciate the value created by advisors like us. They respect us and are ready to follow our advice. On the other hand, this means our responsibilities are heavy. We can’t simply offer advice then sit back and relax – they want us to pitch in, take the initiative and close the deal.

“As business people they are very result-orientated and hate to waste time. If they are truly interested in a deal then they want it to happen very quickly and will drop out if they find the pace too slow. Money is generally a secondary issue; they are more concerned with how much time and effort they have to invest in making a deal happen.”

Mr Ismen believes Turkey can capitalise on its geographic positioning: “Cultural closeness means Turkish business people can communicate with their Middle Eastern and North African counterparts better than can Europeans yet we are also fully conversant with the European way of doing things.

“There are a couple of major private investment firms – Carlyle and AIG – that now run their MENA region activities from Turkey because it is much easier and more cost-effective to travel to, say, Saudi Arabia or Egypt, from Istanbul than it is from London or New York.

“Like the Arabs, our business people and the professionals who advise them, are very result orientated and time concerned and have a reputation for getting things done quickly and efficiently. For this reason, I predict increasing numbers of European Union based companies will use their offices in Turkey as the base for their expansion into the MENA region.

“One of the pioneer Turkish private equity firms, Tukven made several investments and has been generally successful in maintaining the value of its portfolio.

“AIG has helped pioneer private equity activity here and has enjoyed mixed results while NBK, Abraaj, Bain Capital, KKR and Carlyle are becoming important players.”

Currently, SME companies in Turkey, especially those in the manufacturing sector, find it difficult to find funding sources and also face heavy interest rates when borrowing.

Explains Mr Ismen: “It is very difficult for such companies to float, due to the restrictions laid down by the Capital Markets Board.

“It’s also difficult to get Turkish companies to work together on a joint venture as our culture sees each of the parties concerned loathe to pass any measure of control to a partner company. It sits far more easily with them to work with foreign investors. If they are selling shares they are likely to offer them to foreign entities who they believe will bring know-how and potential new markets to the table.”

In the M&A deals that were closed in 2008, the contribution of foreign investors to the total investment into the country was, as usual, very substantial, generating a deal value of around USD13.8bn – which figure includes estimates for deals that had undisclosed values. This represented around 75 percent of the year’s total deal value and came from some 108 deals.

In the same period, Turkish investors made some 64 acquisitions, worth around USD 4.6bn, including estimates for deals with undisclosed values.

The most important investment inflows continue to come from Europe. Last year that represented 81 deals, with a total value exceeding USD 11.5bn (including estimates) – making for around 83 percent of foreign investment deal value. German, Austrian, French, British, Greek and Italian investors were prominent players. Investors from the USA and the Golf region completed 10 and nine deals respectively in 2008.

Says Mr Ismen: “Turkey has a considerably liberal legal system for foreign investment and provides equal treatment for domestic and foreign capital companies except for certain sectors such as media and transactions (such as acquisitions comprising acquisitions of real estate that are located in security loans). There is no pre-entry or pre-establishment screening requirements and no longer a need for notification to the Undersecretariat of the Treasury of Turkey. There is no obligation to choose a specific company name.”

“The rights of international investors will include free transfer of funds, acquisition of real estate located outside security zones, dispute settlement either in local courts or through international arbitration bodies, valuation of non-cash capital, work permits for expatriates and the opening of a liaison office.”

Turkey now has bilateral investment treaties with some 80 countries, double taxation prevention treaties with 71 countries, social security arrangements with 22 countries and 12 free trade agreements.

As in other countries around the world, privatisation has had a major impact in Turkey, generating significant funds for the public sector and breathing new-life into the privatised entities.

Comments Mr Ismen: “Unfortunately, many of these now privatised organisations continue to operate as monopolies and the government has done nothing to stop this. For example, there is still no competitor for Turk Telekom in the fixed line communications sector and, similarly, the state monopoly on the production of raki – Turkey’s national alcoholic beverage – was abolished after the privatisation of Tekel but the privatised company continues to crush the opposition and maintain its 90 percent market share.

According to information gleaned from the official website of PA (the Turkish Privatisation Administration) 16 state companies are currently scheduled for de-nationalisation. They operate in such fields as textiles, ceramics, leather, shipping, tobacco products, electricity distribution, sugar processing, copper manufacture, gas distribution, petrochemicals, aviation and banking.

Mr Ismen believes previously postponed privatisations – such as electricity generation and distribution, highways and bridges and the national lottery will be the drivers of foreign investment in the coming months and years: “Moreover we will witness the sale of financially distressed companies with cashflow problems. In addition, there is the likelihood of a second round of consolidation in some sectors.

“Strong interest in investment possibilities is likely to continue in 2010 but there’s a likelihood of targets being set lower and more M&A activity focusing on mid-sized, often family-owned companies rather than grand schemes.
“Although it is expected that investors from the Gulf region will keep an eye out for investment opportunities in Turkey, the recent drop in oil prices is almost certain to reduce their appetite and their decisions, like those of investors from elsewhere, are likely to become more conservative.

“We are also likely to see a few multinationals divest their businesses in Turkey as they seek to focus more strongly on their core markets.

“Excluding privatisation prospects, I predict that M&A volume, once we have the full year 2009 figures in, will be seen as having dropped to half what it was in 2008. Certainly, the first quarter saw the lowest level of M&A activity since 2004.”

All that said, Tolga Ismen is optimistic for his country’s short and long-term prospects: “Recent policies and reforms have to a certain extent had positive results. Except 2008 and 2009, the Turkish economy had sustained stable growth between 2001 and 2007 and became one of the fastest growing economies in the world. With the disappearance of the adversities of the global crises, the growth in the Turkish economy will most likely emerge once again.”

Managing partner of Ismen Law Firm, Tolga Ismen represents Turkish and international clients. He graduated from Istanbul University in 1997 and obtained his LL.M degree from King’s College London University in 1998.
Mr Ismen has been teaching Mergers & Acquisitions to LL.M students at Bilgi University for the past nine years. Ismen Law Firm was founded in 2004 and specialises in M&A activity.