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Turkey’s strong long-term economic growth and structural reforms have attracted interest of many international investors. In the wake of the depreciation of the Turkish Lira last year, investors are now flocking to acquire Turkish companies. Despite some recent economic headwinds, the World Bank predicts continued Turkish economic growth though 2019 and notes that, “Turkey’s economic and social development performance since 2000 have been impressive. Macroeconomic and fiscal stability were at the heart of its performance.”
As a candidate for EU membership, Turkey has become aligned with many EU standards and regulations. These high standards, combined with legislative reform and investment incentives, make Turkey an attractive place to do business. M&A activity in Turkey consequently exceeded US$13 bn in 2018 alone.
Turkey is strategically positioned for easy market access to Europe, Asia and the Middle East. It also has a youthful and increasingly prosperous domestic market of 80 million people. Labour costs remain competitive and the government has incentives for investment in industries such as electronics, telecommunications, shipbuilding and services such as health and education. In 2016, a TRY200 billion (£30 bn) sovereign wealth fund was created to finance investment in infrastructure, which has enticed further foreign investment into Turkey.
While Turkey welcomes foreign investment, there are a number of regulatory and legal issues which investors need to be mindful of. The Turkish Commercial Code, which was adopted in 2012, created modern and transparent commercial legislation, compatible with the EU’s aquis communautaire. Generally, there are no restrictions on foreign ownership of Turkish companies. However, in some specific industries including civil aviation and media, there can be some restrictions on foreign shareholders.
The most common way to acquire a Turkish company is by means of a share purchase. Although share purchases are generally unrestricted, in certain regulated sectors such as banking, capital markets and energy, regulatory authority approval of a share purchase may be required.
Alternatively, another way to acquire a company is by means of an asset or business purchase. If taking this tack, there is a slightly more complex procedure involved. However, it does have a significant advantage to a purchaser: the Seller and Purchaser remain jointly liable for certain liabilities relating to the asset or business for 2 years after the purchase is notified. Whereas, in a share purchase agreement, all the company’s existing liabilities are acquired once the purchase has is completed. In either case, the new owners automatically take over all existing employment contracts. Tax considerations will also be important when deciding whether to acquire by share purchase or by way of an asset or business purchase.
The transfer of a commercial enterprise must be registered with the Trade Registry and publicly announced in the Trade Registry Gazette. The purchase of shares in a Turkish limited company must be executed before a Turkish notary and announced in the appropriate Trade Registry Directorate.
In certain cases, clearance from the Turkish Competition Authority (TCA) may be required. The TCA must be notified of a proposed merger or acquisition if certain turnover thresholds are met. The threshold most relevant for foreign investors is that if an investor’s worldwide annual turnover exceeds TRY500 million (£75m) – and the asset or business being required has a Turkish annual turnover above TRY30 million (£5m). If this is the case the transaction must be notified to the authority. The authority’s competition board will then assess whether the business has a dominant position and if the transaction will affect competition in Turkey. The transaction is suspended until clearance is given.
Turkey has been on a strong upward economic trajectory for decades. It is a land of opportunity for foreign investors. Turkey’s developed regulatory and legislative regime is a part of what makes the country as an attractive investment destination. Yet investors should be mindful of the compliance issues involved in acquiring or merging with Turkish companies.