Turkish IPO activity on the rise

On 31 July 2017, Borsa Istanbul amended its listing directive, relaxing requirements to list on the exchange. It now allows companies to list that have not generated a profit in the past two financial years, nor meet the previously mandatory equity-to-capital ratio. However, this is subject to meeting a minimum offering size and having recorded operating profits in preceding financial years.

Two recent noteworthy IPOs in the country may have set the tone for what is to come. In June 2017, Turkven-backed clothing company Mavi Jeans, which was valued at $500m, listed on the Istanbul stock exchange, while a month later the same GP also listed DP Eurasia, which owns and controls Domino's Pizza outlets in Russia, Turkey, Georgia and Azerbaijan, on the London Stock Exchange. The flotations are the first in Turkey for private-equity-backed companies since Morgan Stanley-backed Ege Seramik floated in January 2013, according to unquote" data.

"Until recently, the IPO market was very dead in Turkey, but now the Istanbul stock exchange has started to do very well," says Muhsin Keskin, partner at law firm Esin Attorney Partnership. Market sources agree that the pipeline looks promising for IPOs in Turkey, with five or six IPOs expected to go ahead in H2 2017, and a further five expected in H2 2018.

Until recently, the IPO market was very dead in Turkey, but now the Istanbul stock exchange has started to do very well" – Muhsin Keskin, Esin Attorney Partnership

Considering the wider economic and political picture in Turkey, the increased activity in IPO offerings is particularly interesting. Following a tumultuous year in 2016, Turkey's economy took further hits in 2017, as tourism fell and Russian sanctions impacted trade ties. These challenges are mirrored in the most recent growth projection for Turkey issued by the European Bank for Reconstruction and Development (EBRD). The bank recently lowered its 2017 predictions to 2.6% from the 3.4% predicted at the end of last year, while earlier in 2016 it had predicted growth of 4.5%.

In April, the referendum over constitutional amendments to move the country from a parliamentary democracy to a presidential system saw a narrow victory for Recep Tayyip Erdogan. This led to caution in the European Union over prospects of an authoritarian administration. But for Turkey, the referendum has sparked socio-political changes and led to improved business prospects, according to Keskin.

Back in business
Meanwhile, Turkven's CEO Seymur Tari, believes private equity in Turkey is on the rise again. A successful period between 2002-2012 saw big GPs, including BC Partners and KKR, investing in the country. But after 2013, regional conflicts, a weak lira and political volatility scared off potential private equity and strategic investors.

Things started to change between 2014-2016 when the Turkish stock market, deemed cheaper than other markets by investors, began to look promising and, by mid-2016, private equity investors were starting to think about IPOs as being potentially the best exit, Tari tells unquote".

According to Tari, the recent IPOs were successful exit routes for Turkven. The private equity house saw a 9x return on its investment in Mavi Jeans, in which it owned a 55% stake across a period of nine years and now retains a 16% stake. DP Eurasia, which Turkven floated on the London stock exchange, brought an 8x return on investment after seven years. The investment firm sold just over half its shares, decreasing its stake from 90% to 43%.

Reflecting on Turkven's recent listing experiences, Tari notes that, in order to be successful, the IPO must attract big investors. "It is difficult to attract large stock market investors if the IPO size is below $300-400m," he says. DP Eurasia was valued at $250m at the time of floating, though Tari says he would now not pursue the IPO route below $300m. This means that for smaller companies in the lower-mid-market, the traditional trade sale route still remains the most viable option.

"The Turkish market is changing," says Esin's Keskin. "Private equity exits were almost always through trade sales, which are still the most popular exit route. But this is diminishing as firms discover the IPO route as a solid exit option."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• CEE
• Investments
• Regulation
• Top story
• Turkey
• IPO
• Turkven Private Equity