Transformative Power of Private Equity in Turkey

Transcription

1 tepav Economic Policy Research Foundation of Turkey Transformative Power of Private Equity in Turkey Guven Sak, Berlin, Super Returns Conference 27 February 2012

2 Slide 2 Framework Current economic environment Recovery and risks Economic tranformation of Turkey A long-term perspective What is the potential role of private equity? Reflections from TEPAV findings on star companies Takeaways Implications for public policy

3 Slide 3 Turkey has witnessed one of the fastest recoveries Fastest Contracting Economies in 2009 Finland -8.30% Russia -7.90% Hungary -6.70% Mexico -6.50% Japan -6.30% Denmark -5.20% Sweden -5.10% Italy -5.10% England -5.00% Turkey -4.70% Fastest Growing Economies in 2011 (Q3) Qatar 39.50% Ghana 12.00% Argentina 9.30% China 9.10% Estonia 8.50% Sri Lanka 8.40% Turkey 8.20% Botswana 7.80% Colombia 7.70% Nigeria 7.40%

4 Slide 4 Yet with a record-high current account deficit 10% Share of CA deficit in Turkey s GDP (12-month cumulative value) 8% 6% 4% 2% 0% -2% -4% Kaynak: TCMB Ödemeler Source: Dengesi CBRT

5 Slide 5 And a deteriorating quality of external financing 10% Net Capital Inflows (% GDP) 5% 0% -5% Short-term Investments (%GDP) FDI (% GDP)

6 Slide 6 80 Let s have a long-term perspective: Urbanization has been the source of transformation after 1980 Urban population as a percentage of the total population in Turkey and EU countries, (%), European Union Turkey Source: World Bank, World Development Indicators

7 Slide 7 Which led to transition to manufacturing Turkey s top-5 export items (1980, share %) Turkey s top-5 export items (2010, share %) 13,57 5,45 11,09 3,47 7,95 3,01 6,16 2,93 4,48 2, Source: UN COMTRADE

8 Slide 8 Turkey was an important manufacturer in the region in mid-1990s Share in exports of the region and level of industrialization (1996) 35% 30% 25% Country s share in total manufacturing exports of the region Russia 20% 15% Turkey Israel 10% Saudi Arabia Greece Romania 5% 0% Bulgaria Egypt Algeria Azerbaijan 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of manufacturing in Country s total exports (%) Source: UN COMTRADE, TEPAV Calculations

9 Slide 9 Now it is the largest manufacturer in its region Share in exports of the region and level of industrialization (2010) 35% 30% Country s share in total manufacturing exports of the region Turkey 25% Russia 20% Israel 15% 10% UAE Romania Egypt Greece Bulgaria Serbia Moldova Armenia Georgia 5% Qatar Kazakhstan Tunisia Jordan Malta 0% 0% Azerbaijan 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of manufacturing in Country s total exports (%) Source: UN COMTRADE, TEPAV Calculations

10 Slide 10 With an enlarging private sector Number of public enterprises in ISO500 (largest 500 manufacturing enterprises)

11 Slide 11 With a manufacturing base increasingly diversified all over the country Change in the number of companies in Istanbul Chamber of industry Top-500 List ( , provinces with a number of companies above 5 only) Tekirdağ + 6 İstanbul Samsun Kocaeli Sakarya Ordu + 1 Trabzon + 3 İzmir - 37 Denizli 0 Balıkesir + 2 Manisa + 7 Bursa + 28 Eskişehir + 1 Bolu + 2 Ankara + 18 Konya + 12 Kayseri + 10 Adana + 7 K.Maraş + 11 Antalya + 2 Karaman - 1 Mersin - 3 Hatay + 8 Gaziantep + 15 Source: Istanbul Chamber of Industry

12 Slide 12..maintaining different sets of capabilities in different geographies Other; 12% Istanbul Asia; 27% Europe; 51% Bursa MENA; 12% Asia; 4% MENA; 10% Gaziantep Other; Asia; 8% 8% Europe; 24% Europe; 78% MENA; 60%

13 Slide 13 Spread of consumption follows spread of production (number of shopping malls) 2005 Total 94 Outside 3 big cities Total 334 Outside 3 big cities 159

14 Slide 14 Indicators of middle class consumption patterns Automobile Sales (thousand) Passangers served in Turkish airports (million) ,7 Mobile phone subscribers (million) 26,6 61,6 Personal retirement funds (billion TL) 0,3 12,1 Consumer credits (million $, 2010=100) 7 60 Number of consumer credits given (million) 2,2 7,8 Source: ODD, DHMI, TEPAV, TBB

15 Slide 15 Can Turkey be one of largest 10 economies? Yes, if productivity doubles Nominal GDP Output per worker (1000 USD) 1 USA 14,582, China 5,878, Japan 5,497, Germany 3,309, France 2,560, UK 2,246, Brazil 2,087, Italy 2,051, India 1,729, Canada 1,574, Russia 1,479, Spain 1,407, Mexico 1,039, S. Korea 1,014, Australia 924, Netherlands 783, Turkey 735, Indonesia 706, Switzerland 523, Poland 468,

16 Slide 16 Components of economic growth Nominal GDP (million $) Production per worker (thousand $) Average age of the Female labor force population participation rate (%) Average years of education 1 USA 14,582, China 5,878, Japan 5,497, Germany 3,309, France 2,560, UK 2,246, Brazil 2,087, Italy 2,051, India 1,729, Canada 1,574, Russia 1,479, Spain 1,407, Mexico 1,039, S. Korea 1,014, Australia 924, Netherlands 783, Turkey 735, Indonesia 706, Switzerland 523, Poland 468,

17 Slide 17 Banks has been relatively limited in corporate transformation Share of credits given by banks to the private sector in national income (2009, %) 165,7 162,8 141, , ,1 36,5 0 High income level OECD EU Middle and low income level MENA Turkey Source: World Development Indicators

18 Slide 18 The diversity of economy present opportunities for investment in many areas: a lot of star companies average annual growth rate (%) 1, All applicants 250 Turkey 25 companies Despite loss in competitiveness in overall economy: Doing Business rank ( ): Global Competitiveness rank ( ): Source: TurkStat, Turkey 25 survey, Fortune 500 data Turkey 25 is an effort to identify and celebrate high growth companies. The pool of applicants include self-identified high growth companies with minimum conditions: 2008 revenue > 100,000 USD; 2010 revenue > 500,000 USD Number of employees 10 (full time)

19 Number of deals Transformative power of PE in Turkey Slide 19 PE funds have been following this opportunity 45 Number of PE deals in Turkey * Buyout Growth Early stage *Projection of the number of the deals for the end of 2011, given the data up to July Source: Web sites of the PE funds, TEPAV interviews and calculations

20 UK Sweden Belgium Norway Finland Denmark Switzerland Hungary Luxemburg EU average Portugal France Poland Netherlands Germany Spain Greece Romania Italy Turkey Austria Czech Rep. Ireland Bulgaria Ukraine 0,228 0,227 0,219 0,202 0,2 0,195 0,186 0,183 0,176 0,161 0,132 0,101 0,085 0,068 0,067 0,065 0,053 0,048 0,045 0,04 0,018 0,015 Private Equity/GDP ( %) 0,314 0,432 0,566 Transformative power of PE in Turkey Slide 20 Still there is a lot of potential to improve in PE 0,6 Comparison of private equity investments in Europe and Turkey 0,5 0,4 0,3 0,2 0,1 0 Source: EVCA, 2010

21 Slide 21 Star companies in Turkey are from many different industries Industry distribution of Turkey 25 applicants Software services 12,2 Manufacturing and packaging 7,3 Food 7,3 Machinery 7,3 Transportation and aviation equipment 7,3 Automotive 6,1 Construction and engineering 6,1 Computer network and software 4,8 Professional services and consulting 4,8 Construction materials 3,6 Textile and fashion 3,6 Other manufacturing 15,8 Other services 13,4 Total manufacturing 50 Total services 50 % Source: TEPAV

22 Slide 22 PE investments are spread to a diverse range of industries Services Manufacturing Airport Services Entertainment Mobile Marketing Arts &Ent. & Recreation Eyewear Motion Picture Automotive Factoring Services MultiplexOperator Biotech Fairs and Exhabitions Paper & Packaging Broadcasting Fleet Rental Payment Systems Brokerage House Food & Beverage Pharmaceuticals Cargo Carrier Furniture & Carpets Plastics Ceramic Tiles Health Care Real Estate Construction Household Appliances FMCG Retailing Cosmetics Retail Information and IT Security Services Dental Hospital Leasing Ship Building Edible Oil Production Logistics System Integrator Electrical Accessories Media Textile Electronics Retail Medical Equipment Travel Accessories Electronics Mineral Products Vehicle Inspection Source: TEPAV analysis

23 Slide 23 Star companies are from all around the country Tekirdağ (0.7%) Geographic distribution of Turkey 25 applicants Kastamonu (0.7%) İstanbul (25%) Kocaeli(4%) Trabzon(1.5%) Rize(0.7%) İzmir (15%) Aydın (0.7%) Manisa (2%) Bursa (5%) Eskişehir (1.5%) Antalya(2%) Bolu (0.7%) Ankara (18%) Konya(3%) Nevşehir (0.7%) Kayseri (1.5%) Adana (0.7%) K.maraş (2%) Adıyaman(0.7%) Şanlıurfa (1.5%) Muğla (0.7%) Denizli(3%) Karaman (0.7%) Mersin(2%) Osmaniye (1.5%) Gaziantep(2%) Hatay (1.5%) Source: TEPAV

24 Slide 24 Whereas PE deals are almost totally concentrated in Istanbul Location of company HQ Number of deals İstanbul 120 İzmir 4 Kocaeli 3 Ankara 3 Muğla 2 Balıkesir 1 Eskişehir 1 Isparta 1 Samsun 1 Research by Josh Lerner on US data shows that: Best PE/VC funds are concentrated in a few locations These best PE/VC funds mostly invest to the firms in the same locations Their returns from investments in other locations is higher than average Better diligence Access to better untapped opportunities

25 Slide 25 Takeaways There are high growth companies in Turkey From every industry Not only limited to Istanbul Emerging cross-border opportunities Crucial recent steps New Turkish Commercial Code Self-organized industry board: TOBB Venture Capital Sectoral Council Next steps Active dialogue with policy-makers Removal of remaining legal & regulatory obstacles Fund of Funds