October 30, 2015 / 4:35 PM / 4 years ago

Turkey's private equity spree suffers gloomy politics, lira's decline

* Big ticket private equity deals have dried up

* Political uncertainty, lira’s slump deter investors

* Sunday’s vote won’t be a panacea for political worries

By Asli Kandemir

ISTANBUL, Oct 30 (Reuters) - Private equity firms that flooded into Turkey in recent years are now struggling in the face of political uncertainty and the lira’s decline, which have made it harder to lure new investors and exit deals profitably.

Thanks to stellar economic growth, Turkey attracted some of the top names in private equity over the past decade, including U.S.-based Carlyle Group, KKR and TPG Capital, and Europe’s Bridgepoint, as well as local buyout firms.

But they are now finding it increasingly difficult to secure buyers to exit their investments, as concerns about political uncertainty after a hung parliament in elections in June have put investors off Turkey and helped send the lira currency down 20 percent against the dollar this year.

Turks go to the polls again on Sunday, with President Tayyip Erdogan hoping the ruling AK Party, which he founded, will win back the single-party majority it lost five months ago.

Analysts, however, warn that investors shouldn’t expect a panacea for the chronic political worries, and concerns about a revival of violence in the mainly Kurdish southeast, or the country’s economic problems.

“Turkey needs another growth story and new vibe for the economy,” said a top executive at a local private equity firm.

“Private equity companies are heavily invested in sectors generating cash in lira and the lira’s decline pressures their profits and therefore, deal multiples.”

The number of private equity deals fell to 43 in 2014 from 74 a year earlier, and their share of total acquisitions dropped to 14 percent from 22 percent, according to a report by consultancy EY.

One of the biggest deals of the past decade was the $3.2 billion sale of Migros, the country’s largest supermarket chain, to BC Partners in 2008. BC Partners sold 40.2 percent of Migros to Turkey’s Anadolu Group for about $800 million at the beginning of this year.

Another was KKR’s purchase of shipping company U.N. Ro-Ro Isletmeleri in 2007 for about 910 million euros, which it sold last year to local private equity firms Esas Holding and Actera Partners. That deal was worth about 700 million euros ($774.83 million), according to sources.

But such big ticket deals have dried up recently. The value of private equity firms’ transactions fell to $343 million last year, from $503 million in 2013, the EY report showed.

Among the deals whose values have been announced, Goldman Sachs’ purchase of 30 percent of Petlim Limanclk, a port company, for $250 million was the biggest transaction in terms of value in 2014.

Turkish companies, however, are also struggling with the perception that they need to improve governance.

“The slowness of Turkish companies to improve governance, the decline in the value of the lira and political and economic uncertainties have stalled private equity companies’ exit strategies,” said Musfik Cantekinler, partner and head of transaction advisory services at EY Istanbul.

Some analysts say the post-election period may provide a modicum of stability and, therefore, a more suitable environment for private equity’s exits through stake sales or IPOs.

However, that will require a turnaround in currently fragile investor sentiment, which has pushed Istanbul’s blue-chip BIST 30 index down 28 percent this year in dollar terms - the third-worst performance among 30 emerging market stock indices. ($1 = 0.9034 euros) (Editing by David Dolan and Susan Fenton)

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