Turkey still a magnet for private equity funds
Posted by meb at August 26th, 2008
Despite the ongoing global credit crunch, stable and promising markets such as Turkey continue to attract private equity investments. The first half of the year saw $2 billion in private equity fund investments.
While private equity fund exits reached a record high last year, Turkey continues to attract private equity investments, according to an Ernst & Young report released yesterday.
Private equity firms usually require an “exit route” in order to realize a return on their investments. At the time of exit, the firm may not sell all the shares it holds. In the case of a flotation, private equity firms are likely to continue to hold the newly quoted shares for a year or more.
While companies increase their value through selling shares to private equity funds, the increase rate of the value of private equity-held companies has been above those of publicly traded companies for the third year in a row, despite a crippling global credit crunch, the report revealed.
Focusing on the 100 largest private equity exits of 2007, the report found these exits grew at a compound annual growth rate of 24 percent, double the rate of public company counterparts last year. Contrary to common belief, this success of private equity funds is not a result of low-interest indebting and cost restriction, the report emphasized. The capacity of private equity funds to perform better than publicly traded companies shows that the sector can cope with stagnation, and when the market corrects itself, funds will have the upper hand.
“Despite the fact that successful fund managers created high income and added value, they will not be able to attain a rapid growth trend until the market corrects itself, because they retain their investments for a long time,” said Demet Özdemir, managing partner of Ernst & Young Turkey Corporate Financing. “Accordingly, a contraction in the exit volume of investors is expected in 2008 and maybe later.
“Strategic, executive and operational consciousness plays a key role on owning a company,” Özdemir said. “Geographical expansion, increase in sales, introducing new products to the market and restructuring via new company acquisitions are the fundamental components of success along with organic growth.”
Permanent interest in Turkey:
Commenting on the Turkish market, Özdemir said there is “an ongoing private equity fund interest” in Turkey.
“Private equity fund presence in Turkey dates back only 10 years. A global liquidity surplus [before 2007] and the overall confidence and stability caused an increase in the number and the volume of private equity funds in Turkey,” she said. “Thus, the amount of private equity fund investments in Turkey, which was $2.4 billion in 2006 and $2 billion in 2007, has reached $2 billion as of the first six months of 2008. Figures show that Turkey is still a magnet for private equity investors.
“Due to the current crisis in the debt markets, there is a global slowdown in private equity investment. This affects pricing during purchasing processes and increases the importance of ‘due diligence,’ the preliminary investigation of purchasing process,” said Özdemir.
Referring to interviews with fund managers, the report said private equity fund investments will take place in markets that have growth and profit potential, such as Turkey.
source: Turkish Daily News
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