kerem onursal vp yased conference november 9, 2005 private equity in turkey

Kerem OnursalVP

YASED ConferenceNovember 9, 2005

PRIVATE EQUITY

IN TURKEY

2

FUND OVERVIEW

Turkven is an independent Private Equity Fund focused on Turkey

Source: Turkven

Local know-how

and network

USD44 million

Global know-

how and track

record

USD10 billion

3

FUND OVERVIEW

Our Shareholders


Source: Turkven

Local know-how

and network

USD44 million

Global know-

how and track

record

USD10 billion

We have equityand preferential access to

long term debt

4

FUND OVERVIEW

Our Shareholders


Source: Turkven

Local know-how

and network

USD44 million

Our Portfolio

…III IV X

Global know-

how and track

record

USD10 billion

We have equityand preferential access to

long term debt

5

SMART MONEYDeal partner Deal Type

Entrepreneur Shareholder Expansion Capital

Turkven provides capital for growth and our portfolio companies become partners of IFC, FMO, DEG and EIB, important sources of long term debt

We invest in companies to grow them.

Source: Turkven

6




Passive Shareholder Share Sale

Turkven can buy the shares of passive shareholders and strengthen the shareholding structure of the company

Source: Turkven


7






Professional Manager Management Buy-Out & Buy-In

Turkven can provide funds to professional managers who would like to buy their companies (“management buy-out”) or become a shareholder and top executive in another company (“management buy-in”)

Source: Turkven


8




Conglomerates or State Spin-Offs

Turkven buys majority (up to 100%) stakes in non-core companies from conglomerates through “spin-offs”





Source: Turkven


9




Conglomerates or State Spin-Offs

Turkven buys majority (up to 100%) stakes in non-core companies from conglomerates through “spin-offs”





Banks Recapitalizations

Turkven works with banks on the “recapitalization” of companies with borrowings

Source: Turkven


10

Industry

• Pharma

• Logistics

• Automotive Parts

• Business Services

• Food and Beverage

• Durable Goods

• Packaging

• Chemicals

• Construction Mat.

• Media

• ...

• Start-Ups

TARGET INDUSTRIES

We are meeting 15 new companies from all sectors every month, and select those with strategic exit potential.

Source: Turkven

Comment

• Generic manufacturers with market share

• 3PL services

• System manufacturers

• Services to blue-chip clients

• Strong brand and distribution

• Component manufacturers

• High end food packaging

• Focused players with high market share


• Radio, Outdoor, Services

• ...

• Only proven management teams

11

Industry

• Pharma

• Logistics




• Durable Goods

• Packaging

• Chemicals


• Media

• ...

• Start-Ups

TARGET INDUSTRIES


Source: Turkven

Comment


• 3PL services









• ...


We investUSD5-50 million of equity

per deal

12

Industry

• Pharma

• Logistics




• Durable Goods

• Packaging

• Chemicals


• Media

• ...

• Start-Ups

TARGET INDUSTRIES


Source: Turkven

Comment


• 3PL services









• ...


We investUSD5-50 million of equity

per deal

SIZE DOES MATTER !

13

HISTORY OF TURKISH PRIVATE EQUITY

PE Firm First Deal Last Deal $m Deals / Exits Industry

Nomura* 1995 1998 < 20 4 / 4 Agri, Chem, IT

Merrill 1999 1999 < 30 2 / 1 Retail, Manuf.

BofA* 2000 2000 < 20 1 / 0 Retail

Citi VC* 2000 2000 < 5 1 / 0 Food

Saffron* 1999 2000 < 10 3 / 1 IT, Fin Ser, Oth.

ComCap* 2000 2000 < 10 1 / 0 Packaging

AIG 2000 2001 < 30 3 / 2 Media, Sat. Com.

IS VC 2002 2004 < 10 4 / 0 IT, Retail

Turkven / Advent 2003 2004 < 30 2 / 0 Food, Bus Ser

Soros 2003 2003 < 15 1 / 0 Food

Total 180 22 / 8

* Currently not active

Source: Turkven Private Equity

Private equity investment in Turkey have been negligible, at a rate of 2 investments per annum at USD8 million per deal.

14

HISTORY OF TURKISH PRIVATE EQUITY

PE Firm First Deal Last Deal $m Deals / Exits Industry

Nomura* 1995 1998 < 20 4 / 4 Agri, Chem, IT

Merrill 1999 1999 < 30 2 / 1 Retail, Manuf.

BofA* 2000 2000 < 20 1 / 0 Retail

Citi VC* 2000 2000 < 5 1 / 0 Food

Saffron* 1999 2000 < 10 3 / 1 IT, Fin Ser, Oth.

ComCap* 2000 2000 < 10 1 / 0 Packaging

AIG 2000 2001 < 30 3 / 2 Media, Sat. Com.

IS VC 2002 2004 < 10 4 / 0 IT, Retail

Turkven / Advent 2003 2004 < 30 2 / 0 Food, Bus Ser

Soros 2003 2003 < 15 1 / 0 Food

Total 180 22 / 8

* Currently not active


Private equity investment in Turkey have been negligible, at a rate of 2 investments per annum at USD8 million per deal.

Turkey’s PE industryneeds success stories

15

DOING DEALS IN TURKEY - 2005

Dynamic, high growth economy

Availability of companies and management

Key Reasons to Invest

Source: Turkven

Turkey has growth, but the informal economy and valuation expectations put a damper on the number of deals done.

16





A predictableEU accession path will mitigate

some issues

Source: Turkven


Economic volatility

FDI to enable strategic exits

Valuation levels

Availability of leverage for buyouts

Open issues

17





Key Reasons NOT to Invest

Large informal economy distorting competition and profitability

Weak judicial system

A predictableEU accession path will mitigate

some issues

Robust and enforceableagreements and governance

structure are crucial

Source: Turkven


Economic volatility

FDI to enable strategic exits

Valuation levels

Availability of leverage for buyouts

Open issues

18

INVESTING IN TURKISH COMPANIES

Turkish companies present multiple challenges for institutional investors.

Inflation + Macro volatility + Lack of management accounting

ExplanationChallenge

Difficulty to determine past performance of companies

Source: Turkven

19




Volatility increases the option value of being a shareholder and control



Unrealistic valuation and control expectations

Source: Turkven

20





Focused companies may be less robust in volatile markets




Relative scarcity of focused, pure play companies

Source: Turkven

21






Leverage and fixed costs are deadly in crises – adverse selection





Scarcity of companies with aggressive growth plans

Source: Turkven

22







Insufficient minority rights in the commercial code






Long and complicated shareholder agreements

Source: Turkven

23







Insufficient minority rights in the commercial code






Long and complicated shareholder agreements

Source: Turkven

IT IS STILL DIFFICULT TO CLOSE DEALS!

24

MACRO GOVERNANCE CRITERIA

Turkey is becoming more attractive for FDI, but we still havea long to-do list.

What matters most?

Enforceability of legal rights

Quality of accounting standards

Predictability and level of taxation

Administrative efficiency of government

Effectiveness of banking sector

Effectiveness of regulatory system

Source: Turkven, Checklist from McKinsey Quarterly, 2001

25



What matters most?








We have

a long list of things

to be done!

26



What matters most?








We have


to be done!

The optimists:Turkey is an EU convergence play,

there will be further growth!

27



What matters most?








We have


to be done!

The pessimists:Turkey has a great future and it

will always stay that way!

The optimists:Turkey is an EU convergence play,

there will be further growth!

28

FOREIGN DIRECT INVESTMENT FLOWSUSD Million

Source: Turkven

The FDI flows are driven by a land-grab mentality accompanied by privatizations.

01 0 0 0

2 0 0 03 0 0 0

4 0 0 05 0 0 06 0 0 0

7 0 0 08 0 0 0

9 0 0 01 0 0 0 0

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

E

20

06

F

Completed Expected

GSM License Sale

TEB – BNP ParibasDisbank – FortisTurkcell – TeliaSoneraVeh. Inspection (TUVSUD)YKB – Uni CreditoSekerbank – RabobankDigiturk – tbd Eregli Steel – tbd Turk Telekom – tbdGaranti – tbdBasak Sigorta – tbdBotasTotal

2171.2803.100

183 1.000

350200

1.0002.5003.000

100n/a

3.000-12.000

Target - Acquirer Equity

2005

2006

Tupras – tbdCement – tbdTekel – tbdTelsim – tbdStar TV - tbdNational Lottery – tbdTedas - tbdTotal

2.000400

1.3002.000

150500n/a

5.000-6.000

SELECTED DEALS

29

Abdi İpekci Caddesi 23/5, Orjin Han, 80200 Nişantaşı, İstanbulTel: +90 (212) 291 56 30 - Fax: +90 (212) 291 56 36

www.turkven.com

30

Tariff

Jumping

Efficiency

Seeking

STRATEGIC INVESTOR PERSPECTIVE

Over 80% of foreign direct investment is for market share.

Source: McKinsey Quarterly, 2004

Strategic exit

potential

is higher for firms

with dominant

local market share

and strong

distribution

channels

• Automotive

• White Goods

• Brown Goods

• Tobacco

• Pharmaceuticals

• …

• Financial services

• Telecom services

• Advertising services

• Logistics services

• IT services

• ...

• Asian exporters • n/a

• Logistical efficiency • Call centers

Market

Seeking

Goods Services

31

is transforming

the bread market

to an FMCG

market, leading

the industry in

hygiene,

nutritional value

and product range

UNO was the first venture backed leveraged buy-out in Turkey

Turkven-Advent-Doruk bought 100% from Dogus Holding

The total bread market in Turkey is over USD6 billion,

with less than 1% branded (< USD60 million)

UNO is the leading packaged bread company in Turkey

5 times larger than the next biggest competitor

The company grew 100% in yearly sales to over USD30 million

since our investment

We have also doubled the number of distribution points and

introduced 22 new SKUs with a new advertising campaign

Mr Hasip Gençer, the Founder of UNO-Doruk, and a serial

entrepreneur acts as the CEO

UNO IS SHAPING THE INDUSTRY

Key facts

UNO leads the branded, packaged bread market and is an attractive target for global players.

Source: Turkven

2003-200535% CAGR

MAY 2003

32

is transforming

the embryonic

fleet rental market

to a

professionally-run

operational leasing

market

Intercity has been the biggest PE deal in Turkey

with over USD78 million in equity and long term debt

The total long term rental fleet in Turkey consists of

35’000 cars today and will grow to 400’000 in the next 10 years

Long term fleet rental is part of a larger outsourcing trend

world-wide and will continue to grow rapidly

Intercity leads the sector with 7000 vehicles, the best clients, the

lowest costs and access to cheaper foreign funding

The company grew from 1200 to 7000 cars in 3 years

7000 vehicles cost roughly USD140 million

Mr Vural Ak, the CEO and Founder of Intercity is a real

entrepreneur and car aficionado. (Off-road national champion)

INTERCITY IS GROWING EXPONENTIALLY

Key facts

Intercity is Turkey’s largest long term fleet rentalcompany with over 7000 cars as of H1 2005.

Source: Turkven

2003-200575% CAGR

AUG 2004

33

August 20, 2004 – February 18, 2005

Turkven Private Equity

Advent International Corporation

International Finance Corporation

DEG & FMO

have provided

USD78’550’000in equity and long terms loans to

Ekim TurizmTicaret ve Sanayi Limited Sirketi

The deal was advised byDundas & Ünlü, Lexence, DWS Guner, White&Case

Mazars Denge, Hamelink vd Tooren, Houthoff

Institutional Shareholders

34

U S D B i l l io n

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

E

…

0

6 0

1 2 0

1 8 0

2 4 0

3 0 0

TURKEY’S TRANSFORMATION

2005

is proving to

be a year of

stability ,

growth

and increased

FDI flowsInflation

GDP

GDP:

USD280 bPopulation:

70 mInflation:

8%GDP Growth:

7%

GDP CAGR ‘94-’04 = 7%

Coalitions

Crisis & Reforms

Single Party

Source: Turkven

The economic and political stability of Turkey has improved due to structural reforms and a single party government.

35

THE CRISIS AND THE REFORMS

Turbulant times in 2001 and 2002

Feb 2001 - Coalition government collapsed

USD currency peg and twin deficits

loss of credibility

Popular question: Brazil or Argentina?

Technocrat government passed structural reforms

Independent Central Bank with inflation target

Program and USD20 billion package with IMF

Clean-up of state banks and weak banks

Consolidated state budget

Fiscal discipline and primary surplus program with IMF

November 2002 - First single party government in a decade

Transition

from coalition

governments

to a single

party

government

2001-2002


36

STRUCTURAL REFORMS

The government inherited a disciplined and realistic IMF program

Primary balance +6.5% of GDP

Inflation target 25% down from 80%

Increased strategic importance due to Iraq and Afghanistan

Low global interest rates supporting emerging market debt

Increased exports to Russia and neighbouring markets

As a result:

Trade deficit dropped

Investments in capital goods increased

Inflation slowed down

The single party

government stuck

to the reforms

and reaped

the benefits

immediately

2003


Stability in 2003 with the help of IMF

37

EUROPE?

The good …

Inflation on target 9%

GDP grew 10% in while the state sector shrank

000’000 is dropped with New TL (1 USD = 1.4 YTL)

Capital expenditure peaked (23% of GDP)

Cyprus PR success

Tourism boom (up 30%, USD15b revenues)

The challenges …

Domestic debt real interest rate still at 10% (22% nominal)

Jobless recovery - > Limited consumer demand

Trade deficit of USD30b (Imports 95b – Exports 65b)

Public debt / GDP = 220 / 260 = 85%

The EU granted a

date to start

negotiations

2004E


2004 was the turning point for the Turkish economy

38

FINANCING GROWTH

… and may be the ideal form of financing for companies with significant value growth potential.

May not be suitable for long-term growth plans as the majority of debt available is usually short-term, variable rate and asset-backed, requiring a mortgage. Debt has serious consequences if the business does not perform.

IPO is difficult to plan due to the volatility in stock exchanges, is limited in size and brings reporting requirements. A depressed stock price is a problem when negotiating with strategic investors.

More appropriate for companies that have completed their growth and value-creation cycle as most strategic investors will require majority ownership and control.

Helps company grow faster without liquidity risk through equity and long term debt support.

Provides negotiating power to portfolio company during negotiations with customers, suppliers and potential investors.

No control requirement.

ExplanationPartnership alternative

DEBT

Source: Turkven

Partnership for growth

EQUITYfrom STRATEGIC

PRIVATE EQUITY

EQUITYthrough IPO

Value growthcan come from the top-line

or bottom-line

kerem onursal vp yased conference november 9, 2005 private equity in turkey

Documents

companies management

portfolio companies

company management buy

turkvenlocal knowhow

noncore companies

partners of ifc

shareholding structure

shares of passive shareholders