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PRIVATE EQUITY IN TURKEY İlhami Koç June 2008

Explore the major characteristics and growth of the Turkish financial sector, as well as the increasing attention and investment in the Turkish private equity market. Learn about the market position of private equity funds and trends in the industry, including investment size, expected returns, and exit options.

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PRIVATE EQUITY IN TURKEY İlhami Koç June 2008

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  1. PRIVATE EQUITY IN TURKEY İlhami Koç June 2008

  2. MAJOR CHARACTERISTICS OF TURKISH FINANCIAL SECTOR Significant Savings Deficit Dominated by Banks Credits are Mainly Short-Term Public Offering is The Only Financing Source of Capital Markets SMEs are having trouble in finding the sources to finance their growth. 2

  3. TURKISH PE INDUSTRY GROWTH Private Equity Investments in Turkey (2003-2007) 2.1% 0.2% 3.2% 6.9% 7.2% 26.6%* 3 2 2 2 PE’s Share in M&A Market Number of Exits Source: Mergermarket, as of 6 June 2008 Industry is growing despite unfavourable market conditions

  4. Office in Turkey with a dedicated fund Opportunistic / Regional with an office in Turkey Does not have an office in Turkey TURKISH PE INDUSTRY GROWTH – Market Position of PE Funds 2002 Bubble size indicates the number of deals done by the fund Only 5 years ago, number of active players in Turkish PE market was limited to 5 4

  5. Office in Turkey with a dedicated fund Opportunistic / Regional with an office in Turkey Does not have an office in Turkey TURKISH PE INDUSTRY GROWTH – Market Position of PE Funds 2008 Bubble size indicates the number of deals done by the fund Turkish private equity market is increasingly attracting significant attention (*) Not drawn to exact scale 5

  6. TURKISH PE INDUSTRY GROWTH –Most Active Players PE Funds’ Activity – Total Number of Deals (2003-2007) PE Funds’ Activity – Total Deal Volume (2003-2007) * Excluding transactions completed by consortiums with strategic players, including leverage Is Private Equity is the market leader in terms of number of deals whereas BC Partners has made the largest investment in Turkish market history. 6

  7. TURKISH PE INDUSTRY GROWTH –Transactions in 2007 Entrance of big players increased size and changed the type of deals 7

  8. TURKISH PE INDUSTRY GROWTH– Top 10 Deals Buyer Size ($mn) Target Sector Stake (%) Date Source: Mergermarket

  9. TRENDS IN THE MARKETS INDUSTRY PARTNERSHIP STRUCTURE INVESTMENT SIZE EXPECTED RETURN EXIT OPTIONS

  10. 1995 – 2004 2005 – 2008 TRENDS IN THE MARKET– Industry Source: Private Equity Report in Turkey ,2007 Investments have been focused on mainly consumer goods, services and health industries

  11. 2003 2007 2008 2005 TRENDS IN THE MARKET – Investment Size Thanks to newcomers, ticket sizes are growing.

  12. 1995 – 2005 2006 – 2008 TRENDS IN THE MARKET– Partnership Structure Source: Private Equity Report in Turkey ,2007 Majority investments become more popular

  13. Beyaz Fleet Leasing 19months 4,0 64,64%* Step Halı 4 years 3,5 19,72%* Cinemars 3 years 11,5 30,25% Tüyap 14 months 26,0 45,75% TRENDS IN THE MARKET – Expected Returns • EBITDA multiples are around 5-8. • During the last a few years, PE funds decreased their IRR expectation. Examples Investment Duration Invt. (mn$) Return (%) * Beyaz Fleet Leasing and Step Halı returns have been calculated from ISE data. Private Equity investments in Turkey generally seek for 15-25% returns on USD terms

  14. TRENDS IN THE MARKET – Exit Options Public Offering Strategic Sale Financial Sale Management / Owner Buyout All exit options are available in the market

  15. EXPECTATIONS FINANCING • As a result of recent global economic developments, financing cost is increasing. NEWCOMERS • Despite market conditions, new funds are coming TRANSACTION VOLUME • Ticket sizes will remain high. EXITS • Because of market conditions, exit will be harder than before. EXPECTED RETURN • An internal rate of return will be around 15%-25%.

  16. LOCAL CHALLENGES TO CONSIDER • Accessing Proprietary Deal Flow • Foreign funds’ need to utilize intermediaries to generate deal flow  creates an “auction” environment, high competition resulting in increase in entry prices • Deal Structuring • PE funds’ requirement for risk control mechanisms (exit priorities, drag-along, tag-along rights) and capital protection clauses (dividend privileges, minimum return guarantees) not well understood by founding shareholders • Determining Past Performance of Companies – Due Diligence • Macroeconomic history of high inflation, fluctuating FX rates and volatility • Lack of accounting and IT infrastructure • Business Culture, Corporate Governance and Transparency • Family owned companies reluctant to have an outside shareholder • Complicated shareholding structures, hard to identify “related-parties” • Management Recruiting and Retaining • Scarcity of result-oriented management talent that can deliver PE expectations • Management backgrounds relatively difficult to reference 16

  17. www.isyatirim.com.tr www.isinvestment.com IS INVESTMENT İŞ Kuleleri Kule-2 Kat:124. Levent 34330 İstanbul Turkey Tel: (+90212) 350 20 00Fax: (+90212) 350 20 01 HEAD OFFICE Tahran Cad. No:3/8 Kavaklıdere 06700 Ankara Turkey Tel: (+90312) 455 26 50Fax: (+90312) 466 26 62 ANKARA BRANCH Akdeniz Cad. No:14 Birsel İş Merkezi Daire:501Alsancak 35210 İzmir Turkey   Tel: (+90232) 488 90 00   Fax: (+90232) 488 90 01 İZMİR BRANCH Fenerbahçe, Fener Kalamış Cad. Tibaş-Belvü Sitesi A2 Blok Daire:3Kadıköy 34726 İstanbul Turkey Tel: (+90216) 542 72 00 Fax: (+90216) 542 72 01 KALAMIŞ BRANCH Köybaşı Caddesi İskele Çıkmazı No:277 Yeniköy 34464 İstanbul Turkey Tel: (+90212) 363 01 00 Fax: (+90212) 363 01 01 YENİKÖY BRANCH SUBSIDIARY MAXIS SECURITIES LTD. 8 Princes Street London EC2R 8HL U.K. Tel: (+44207) 397 1431 Fax: (+44207) 726 2566 Jeltozbekova Street 97 Block A2 Floor:2 Almaata 050051 KazakhstanTel: (+7727) 334 05 08 Fax: (+7727) 334 05 09 Süleyman Seba Cad. No:44 B1 Blok Daire:10 Akaretler 34357 İstanbul Turkey Tel: (+90212) 326 87 00 Fax: (+90212) 326 87 01 AKARETLER BRANCH ALMA ATA REPRESENTATIVE OFFICE Havalimanı Kavşağı EGS Business Park B3 Blok No:470 Yeşilköy 34149 İstanbul Turkey Tel: (+90212) 463 20 00 Fax: (+90212) 463 20 01 Yapı Kredi Plaza C Blok K:9 Bölüm 25/B 4. Levent 34330 İstanbul Turkey Tel: (+90212) 282 00 18 Fax: (+90212) 282 00 19 YEŞİLKÖY BRANCH İSTANBUL REPRESENTATIVE OFFICE

  18. TURKISH vs. GLOBAL PE INDUSTRY – Share in Total Deal Volume* Global PE Activity Turkish PE Activity Sounce: Mergermarket, Dealwatch Turkish PE industry promises a significant growth potential with 7% weight of PE deals in total deal volume compared to global figure of 45%. 18

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