Turkey’s impressive growth performance and structural reforms implemented over the past decade have attracted interest of many international investors. In the wake of the fall in the Turkish lira in 2018, investors are flocking to acquire Turkish companies. Despite some recent economic headwinds, the World Bank predicts continued economic growth into 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 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 is consequently predicted to exceed $13bn for 2018.
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 Tl200bn ($37bn) sovereign wealth fund was created to finance investment in infrastructure.
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, adopted in 2012, created modern and transparent commercial legislation, compatible with the EU’s “aquis communautaire”. There are generally no restrictions on foreign ownership of Turkish companies. However, in particular industries such as civil aviation and the 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.
An alternative way to acquire a company is by means of an asset or business purchase. This approach is slightly more complex procedurally, but it does have an advantage to a purchaser: the seller and purchaser remain jointly liable for certain liabilities relating to the asset or business for two years after the purchase is notified. In a share purchase, all the company’s existing liabilities are acquired once the purchase is completed. In either case, the new owners automatically take over all existing employment contracts.
The transfer of a commercial enterprise must be registered with the Trade Registry and 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. Tax considerations will be relevant in deciding whether to acquire by share purchase or by way of asset or business purchase.
In certain cases, clearance from the Turkish Competition Authority may be required. The authority 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 Tl500m ($93m) – and the asset or business being required has a Turkish annual turnover above Tl30m ($5.6m) – 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 put on hold until clearance is given.
Turkey has been on a strong upward economic trajectory for decades. Its government is committed to supporting inward investment and continued economic and regulatory development. It is a land of opportunity for foreign investors. Turkey’s developed regulatory and legislative regime part of what makes it attractive, yet investors must be mindful of the compliance issues involved in acquiring or merging with Turkish companies.
Seray Özsoy is a partner at Kılınç Law & Consulting, an Istanbul-based commercial law firm.