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Turkey’s investment opportunity ‘firmly intact’

13 Mar 2014

Against a backdrop of an impending presidential election and continued growth in Turkey, the country’s fundamental aspects of attractiveness are firmly intact, according to locally-focused private equity firm TRPE Capital.

The key impact for mid caps has been the currency exchange volatility, which led to the currency to depreciate around 20 per cent against USD since the beginning of the year, the firm noted.

“We expect the impact of this consideration to be minimal on the SMEs due to low levered balance sheet especially in terms of hard currency exposure, recent export focus to the immediate region including the neighbouring Arab countries, and less dependency on imported raw materials.”

However, mid-market companies and SMEs with weak balance sheets or strained working capital conditions will become more vulnerable as the year progresses. “We believe that the current short-term environment is very conducive to selective and aggressive investment opportunities within the SME space with a focus on exporters with strong consumer brand recognition which would benefit from the current FX environment, local consolidators who can execute opportunistic accretive acquisitions in their respective sectors, sophisticated management teams with strong track-records in FX fluctuation management and previous crisis management.

“Furthermore, we are observing the entry price dynamics working in our favor with vendors now willing to engage with us at lower entry multiples.”

Investor equity is becoming more valuable by a range of 0.5 to 1.5x of EBITDA, TRPE said, when compared to the average of the last two years. Combined with the loss of value in TL, companies are in play for 30 per cent less entry valuation in USD terms. The situation is further emphasised by the rise of the price of debt instruments provided to SMEs by local banks as SMEs seek to institutionalse secular growth levels with exports. The current window is expected to remain open throughout 2014 and may extend through 2015, the firm added.

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