Republic of Turkey Prime Ministry

Investment Support & Promotion Agency of Turkey (ISPAT)

Ecosystem

for

Private Equity and M&A

in

Necmettin KAYMAZ Chief Project Director

5th Turkey Private Equity and M&A Forum

21 May 2015, Istanbul, Turkey

Investment Support & Promotion Agency of Turkey

Established in 2006 to increase & attract direct investment

Attached to the Prime Ministry & directly report to the PM

Private sector approach with public sector capabilities

ONE STOP SHOP approach

Providing extensive services:

Coordination with relevant governmental institutions

Market information and analyses

Site selection

Matchmaking potential partners

Facilitating legal procedures, such as:

-Company set-up; incentive applications; work permits

Macroeconomic fundamentals are supporting PE and M&A market in Turkey..

• +$1.5 trillion economy as of 2014 and will reach $2 trillion by 2020

• Real GDP growth of 4.7% per year 2002-2014 and is to continue with 4.2% CAGR between 2014-2030

• Reforms implemented since 2003 made Turkey the biggest reformer in liberalizing foreign investment legislation, attracting vast amount of FDI inflows

• Reform process is here to continues…

Track record of stellar growth supported by pro-business policies and

reforms

• A domestic market of c. 80 million people with half under the age of 30

• Skilled, productive, diligent and cost-competitive labor force

• Domestic consumption has the largest contribution to economic growth

• A growing middle class with increasing income is spurring growth

• Per capita income has been converging with the EU

• Rapid urbanization with over 90% of population living in cities

A robust domestic market

with growing middle class and

urbanization

• Turkey’s geostrategic location provides access to 1.5 billion people in Europe, Central Asia, Middle East and North Africa, creating lucrative export opportunities

• Global companies are using Turkey as a manufacturing and managerial hub to access the markets around Turkey..

• As such, export has drastically increased and diversified over the past 12 years

Strategic location with

lucrative export opportunities

An attractive PE and M&A

Market

Economic Fundamentals and Reforms

Source: IMF World Economic Outlook April 2014, Eurostat, OECD, TurkStat, OECD Economic Outlook No.95, May 2014

0,8 1,0 1,1 1,1

1,4 1,6 1,6 1,7 1,9

2,5 2,5

3,1 3,2

3,7 3,9 4,0 4,0

4,7

0

1

2

3

4

5

Japan

Fra

nce

Germ

any

EU

28

Hungary UK

Slo

venia

Irela

nd

US

Czech R

ep.

Mexic

o

South

Afr

ica

Bra

zil

Kore

a

Pola

nd

Russia

Slo

vakia

Turk

ey

Average Annual Real GDP Growth (%) 2002-2014 Strong record, bright future

Turkish economy has been one of the fastest growing economies in the world over the past 12 years and is promising further growth in future…

1,1 1,1

1,4 1,5 1,5

1,6 1,7 1,7 1,9

2,0 2,0 2,1 2,2 2,2 2,2 2,2 2,3 2,4

2,6 2,6 2,6 2,6 2,7 2,9 2,9 2,9

4,2

0

1

2

3

4

Ge

rman

y

Jap

an

Po

rtu

gal

Spai

n

Ital

y

Den

mar

k

Euro

Are

a

Hu

nga

ry

Au

stri

a

Bel

giu

m

Fin

lan

d

Can

ada

Fran

ce

Po

lan

d

OEC

D

Gre

ece

Irel

and

US

Swed

en UK

Slo

vaki

a

Bra

zil

Ru

ssia

Cze

ch R

ep.

Mex

ico

Ko

rea

Turk

ey

Potential Real GDP Growth 2014-2030 (Average Annual, %)

Source: IMF

Robust economic growth has resulted in creating a sizeable economy of more than $1.5 trillion which is marching to $2 trillion…

Turkish Economy GDP at PPP ($ Billion)

537

681

1.118

1.508

2.056

145

436

390

548

0

500

1000

1500

2000

1996 1997-2002 2002 2003-2008 2008 2009-2014 2014 2015-2020 2020

Pre-reform period

Reform period

New-generation reforms

Source: TurkStat

Main Drivers of the Economic Growth

65,7%

31,5% 27,8%

10,7%

4,3%

-1,8%

-38,2%

-45%

-25%

-05%

15%

35%

55%

75%

Contribution to Real GDP Growth 2002-2014, Expenditure

Manufacturing 27,0%

Financial intermediation

19,0%

Transport, storage &

communication 13,8%

Wholesale & retail trade

13,6%

Other 26,5%

Contribution to Real GDP Growth 2002-2014, Production

Turkish economy is fairly diversified and driven by entrepreneurial spirit of the private sector, robust domestic market and lucrative export opportunities…

Since early 2000s, Turkey has embarked on a comprehensive reform program, spurring economic growth and attracting foreign investment..

National Treatment

Guarantee of Transfers

International Arbitration

Purchase of Real Estate

Employment of Expats

International standards (IFRS & IAS)

Transparency & Accountability

Institutionalization of companies

Opportunity to perform board meetings online

27

29

30

30

31

36

37

38

39

25 30 35 40

Romania

Russia

Bangladesh

Bulgaria

Poland

Morocco

Cameroon

Turkey

Guatemala

6,0

15,0

18,0

19,5

23,0

27,0

30,0

33,0

05101520253035

Turkey

Russia

Switzerland

Czech Rep.

Spain

India

Poland

China

Number of Days to Establish a Company in 2013

Number of Days to Establish a Company in 2003

New FDI Law in 2003

Corporate Tax reduced to 20% in 2006

New Commercial Code in 2012

Source: World Bank

Source: OECD

-0,1

0

0,1

0,2

0,3

0,4

0,5

0,6

Ch

ina

Ind

on

esia

Ind

ia

New

Ze

alan

d

Mal

aysi

a

Mex

ico

Ru

ssia

Can

ada

Icel

and

Ko

rea

Au

stra

lia

Isra

el

Au

stri

a

Bra

zil

Un

ited

Sta

tes

No

rway

Swit

zerl

and

Po

lan

d

OEC

D -

Ave

rage U

K

Turk

ey

Swed

en

Jap

an

Ital

y

Slo

vaki

a

Fran

ce

Irel

and

Arg

enti

na

Den

mar

k

Gre

ece

Hu

nga

ry

Ger

man

y

Spai

n

Fin

lan

d

Net

her

lan

ds

Cze

ch R

ep.

Luxe

mb

ou

rg

Drop in Index Score from 2003 to 2013 2013 Score

TOP REFORMERS 1. Turkey 2. Malaysia 3. Finland 4. India 5. Russia

------ OECD

Average Score

in 2013

Index Score: 1=Closed to FDI, 0=Open to FDI

M o r e R e s t r i c t i v e L e s s R e s t r i c t i v e

FDI Regulatory Restrictiveness Index

As a result of reforms, Turkey has emerged as the biggest reformer in the world in easing regulatory environment for foreign investors..

Turkey’s improved investment environment has made Turkey a magnet for foreign direct investment (FDI)…

Source: CBRT, MoE

Increasing Foreign Direct Investment

15

149

0

20

40

60

80

100

120

140

1923-2002 (80 years) 2003-2014 (12 years)

FDI Inflows ($ billion)

5,6

41,4

0

5

10

15

20

25

30

35

40

45

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

# of Foreign Companies in Turkey ('000)

As Turkish economy grows, investors from all around the world have been flocking to Turkey and investing in a variety of sectors…

Source: CBRT

Top Investors in Turkey (2003-2014)

Investors Share (%)

EU countries 69,2

North America 8,9

Gulf Countries 7,7

Russia 3,5

Azerbaijan 2,6

Japan 1,7

Switzerland 1,5

Lebanon 1,0

Kazakhstan 0,6

Norway 0,5

Brazil 0,5

Malaysia 0,4

South Korea 0,4

Israel 0,3

Hong Kong 0,3

South Africa 0,2

Jordan 0,2

Singapore 0,2

Australia 0,1

India 0,1

The Most Attractive Sectors (2003-2014)

Sector Share (%)

Finance & Insurance Services 30,1

Real Estate (Property Purchase, Construction, RE Services) 23,4

Manufacturing 17,9

Energy 10,5

Information & Communication 7,8

Wholesale & Retail Trade 4,2

Transportation & Storage 1,7

Mining & Quarrying 1,4

Human Health and Social Services 1,2

Professional, Scientific & Technical Services 0,5

Other sectors 1,5

The reform process is here to continue… The government has recently introduced a new comprehensive reform program in 25 areas, including 1300+ actions..

Productivity growth Reducing Dependence on Imports

Increasing Domestic Savings

Istanbul Financial Center

25 Priority Transformation Programs

Rationalization of Public Expenditures

Improving Quality of Public Revenue

Improving Business & Investment Climate

Improving the Effectiveness of the Labor Market

Reducing the Informal Economy Improving Statistical Infrastructure

Commercialization of Priority Technology Areas

Technology Development & Domestic Production through Better Public Procurement

Energy Generation Based on Local Resources

Energy Efficiency

Effective Use of Water in Agriculture

Transformation in Healthcare

Health Tourism

Transition from Transportation to Logistics

Improving Basic & Occupational Skills

Attracting Qualified Human Resources from Abroad

Healthy Life & Mobility

Preserving Family & Dynamic Population Structure

Local Institutional Capacity Development Urban Redevelopment Program

International Cooperation for Development

Favorable Demographics

Population Pyramid (%)

5 4 3 2 1 0 1 2 3 4 5

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85-89

90+

Female Male

%

Age Group TURKEY

5 4 3 2 1 0 1 2 3 4 5

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85-89

90+

Female Male

%

Age Group EUROPE

Source: Turkstat, Eurostat, UN, 2014

78 million young & dynamic people

5 4 3 2 1 0 1 2 3 4 5

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85-89

90+

Female Male

%

Age Group ASIA

Turkey has a young and dynamic population, with half under the age of 30, making Turkey the country with the largest youth population in Europe…

Favorable demographic trend is here to stay for the next two decades with increasing working age population and low dependency ratio..

Source: UN

80

100

120

2014 2017 2020 2023 2026 2029 2032 2035

Working Age Population (15-64) (Index: 2014=100)

Europe

Turkey

40

45

50

55

60

65

70

75

2014 2017 2020 2023 2026 2029 2032 2035

Total Dependency Ratio (%) (Age 0-14 & Age 65+) / Age 15-64

Europe

Turkey

95

100

105

110

115

120

20

14

20

15

20

16

20

17

20

18

20

19

20

20

2021

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

Turkey

Europe

Population Projections (Index: 2014=100)

The young and dynamic population has been supporting labor pool with skills and talents demanded by business community…

Source: IMD World Competitiveness Yearbook 2014, IMD WCY Executive Opinion Survey based on an index from 0 to 10 (0 = Not available 10 = Readily available)

Skilled Labor Force 2014

6,0

5,9

5,8

5,4

5,0

4,7

3,1

0 1 2 3 4 5 6

Turkey

Romania

Czech Rep.

Poland

China

Hungary

Bulgaria

Availability of Skilled Labor Force

6,0

5,2

5,2

5,2

4,8

4,1

2,7

0 1 2 3 4 5 6

Turkey

Czech Rep.

Romania

Poland

China

Hungary

Bulgaria

Availability of Competent Senior Managers

7,1

6,8

6,7

6,22

6,0

5,6

3,9

0 2 4 6 8

Turkey

Hungary

Romania

Czech Rep.

China

Poland

Bulgaria

Availability of Qualified Engineers

7,0

6,5

5,7

5,4

5,4

5,2

3,6

0 1 2 3 4 5 6 7

Turkey

Poland

Romania

China

Hungary

Czech Rep.

Bulgaria

Availability of Finance Skills

A cost-competitive, diligent and loyal working culture has enable Turkish labor force to offer productive capacities..

Source: Eurostat , TurkStat, Mercer

4,6 5,5 5,7 6,6 6,7 7,8 8,3 8,3 8,3

9,7 10,8

11,9

22

0

5

10

15

20

25 Annual average number of sick days per employee, 2008

52,0

42,7 41,9 41,9 41,7 41,5 41,5 41,5 40,8 40,4 40,1 40,0 39,6 38,8

30

35

40

45

50

55

Productive and Cost-effective Labor Force

Annual Average Hours worked per week, 2013

95

110

125

140

155

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Turkey

Poland

Czech Rep.

Hungary

Productivity: Real GDP per hour worked (Index: 2001=100)

45,8 45,0

39,2

28,8 27,2

18,8

12,4 11,5 9,7 8,8

6,9 0

5

10

15

20

25

30

35

40

45

50

Fran

ce

Ger

man

y

Irel

and

Spai

n

UK

Slo

ven

ia

Cze

ch R

ep.

Slo

vaki

a

Hu

nga

ry

Po

lan

d

Turk

ey

Labor Cost Per Hour in Manufacturing ($), 2012

Growing Middle Class

&

Emerging Urban Centers

Source: TURKSTAT, OECD

30,3

23,8

20,9

16,4

13,3

8,4 6,8

4,4 3,7 2,8 2,3 2,1 0

5

10

15

20

25

30

35

200

2

200

3

2004

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

Percentage (%) of Poor People Living on Less than $4,3 Per Day

63,6

47,4

40,5 40,2 39,8 39,2 34,3

30,8

25,1

7,3 0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10

Lowest income

top income group

Real Increase (%) in Household Income 2002-2012

I n c o m e D e c i l e G r o u p s ( 1 0 % )

-0,1

-0,08

-0,06

-0,04

-0,02

0

0,02

0,04

0,06

Turk

ey

Mex

ico

Irel

and

Gre

ece

Bel

giu

m

Spai

n

Hu

nga

ry

Ital

y

Slo

vaki

a

Po

rtu

gal

UK

Po

lan

d

Cze

ch R

ep.

Jap

an

No

rway

Ko

rea

Fran

ce

USA

Au

stri

a

Au

stra

lia

Ger

man

y

Fin

lan

d

Den

mar

k

Can

ada

Swed

en

Percentage point changes in the Gini coefficient (Mid-1990s to Mid-2000s)

Turkey’s robust economic growth has been translated into increasing income and decreasing poverty…

Rise of the middle-class in Turkey

Source: Euromonitor International; Credit Suisse, Adults are defined to be individuals aged 20 or above

0

2

4

6

8

10

12

14

16

18

2002 2013

10,6

2,3

5,3

18,0

1,0

9,5

Income < $10K Income > $10K Income > $25K

Number of Households by Annual Disposable Income (million)

5000

10000

15000

20000

25000

30000

2002 2013

11.141

25.909

Wealth per Adult ($)

Increasing income and decreasing poverty have paved the way for the emergence of a sizeable middle class…

With increasing income and decreasing poverty, Turkey has been catching up with the European Union…

Source: IMF

10.324

19.556

10.000

12.000

14.000

16.000

18.000

20.000

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Income per capita in Turkey ($, PPP)

41%

55%

30%

35%

40%

45%

50%

55%

2002 2014

Income per capita (PPP) Turkey as % of the EU average

Turkey: A development story; catch-up and convergence…

With increasing income and lower liabilities, household consumption culture has also changed with more spending on non-basic needs..

Source: TurkStat, CBRT, ECB, FRED

Food & Housing

54%

Other 46%

2002

Allocation of Household Consumption Expenditures

Food & Housing

45% Other 55%

2013

24

64

81

0

20

40

60

80

100

Turkey Euro Area USA

Household Liability % of GDP (2013)

Source: TUKSTAT; ICTA

Emergence of the Turkish middle-class can be observed in many key dimensions with increasing purchasing power…

4,6

9,9

0

2

4

6

8

10

2002 2014

Stock of Automobiles (million of passenger cars)

23,0

72

0

15

30

45

60

75

2002 2014

Mobile Phone (million of subscribers)

0,1

41

0

15

30

45

2002 2014

Broadband Internet (million of subscribers)

0,4

1,4

0

0,5

1

1,5

2008 2014

House Sales (million of houses)

3,4

8,0

0

2

4

6

8

2003 2014

Turkish Citizens Visiting Abroad (million of people)

188

585

0

100

200

300

400

500

600

2002 2013

Healthcare Spending per capita ($)

There are 20 cities with populations over 1 million

Geographic Breakdown of Turkey’s Largest 1000 Industrial Companies

With economic development, Turkey’s industrial landscape has also changed with growing urban centers..

Source: Istanbul Chamber of Industry

İstanbul; 498

İzmir; 95

Bursa; 64

Ankara; 59

Rest of Turkey; 284

Number of Companies by Location in 2002

İstanbul; 379

İzmir; 73 Bursa;

62

Rest of Turkey; 426

Number of Companies by Location in 2013

Emerging cities: Gaziantep (57 up from 16); Kocaeli (60 up from 25); Kayseri (28 up from 25); Konya (25 up from 13); Adana (24 up from 17); Karaman (16 up from 8); Tekirdağ (12 up from 7)

Strategic Location

&

Export Opportunities

Turkey’s geographic location is very convenient for accessing major export markets..

Source: IMF World Economic Outlook and WTO; GDP, Imports and population figures as of 2014

EUROPE

GDP: $20.8 trillion Import: $6.7 trillion Population: 670 million

RUSSIA

GDP – $1.9 trillion Import: $308 billion Population: 144 million

MENA

GDP: $3.9 trillion Import: $1.1 trillion Population: 703 million

CENTRAL ASIA & CAUCASUS

GDP: $0.44 trillion Import: $97 billion Population: 85 million

Access to Multiple Markets

1,5 Billion People

$27 Trillion GDP,

over $8 trillion trade

(45% global trade)

at a 4-hour flight

distance

SOURCE: TSKB

PCs and peripherals • Tripling production with new investment • To export 90% of total

production

Heavy commercial vehicles • New model to be

manufactured in Turkey and exported to 65 countries

Energy • Tripling production to export to countries in

Europe, North Africa, and South America

FMCG

• Production base for the Middle Eastern and North African markets

Filters and generators • 85% of total

production to be exported

Textile • Moving all

production volume to Turkey

New line of trucks

•Regional manufacturing

hub for new line of trucks

• Annual production capacity of 150K units

• Exporting 90% of its production to 30 countries

Due to its strategic location, many global companies have been using Turkey as a manufacturing and export hub..

Company Regions managed

from Turkey Rationale behind choosing Turkey as a management hub

90 countries • Eurasia • Africa

“Turkey is a strong country due to its dynamic economy and young population” -Ahmet Bozer, Executive Vice President and President of Coca Cola International, 2011

79 countries • Middle East • Africa

“Besides, the business opportunities Istanbul offers, its educated workforce and infrastructure supporting expats are important” -Ala Faramawy, VP Microsoft International, 2011

64 countries • Middle East • Africa

"Turkish managers have the European business ethics and discipline and the strong communication skills of Eastern managers" –Intel's Business Dev.Manager, Burak Aydın, 2012

52 countries • Europe • Central Asia • Middle East • North Africa

“Besides regional proximity to our clients, İstanbul provides appropriate infrastructure, convenient airport links, and a good quality of life for our staff.” Dimitris Tsitsiragos, VP, IFC, 2010

20 countries • Caucasus • Central Asia • Eastern Europe

"Pfizer Turkey is referred to as 'A School of Leaders', since it continuously transfers successful executives to Pfizer companies worldwide. Today, more than 35 Turkish senior executives are appointed to Pfizer affiliates all around the world. " –ISPAT website, 2012

Source: Press releases

Turkey is also becoming a regional management hub for global companies…

Source: TURKSTAT

Increasing and diversifying export

In addition to a robust domestic market, Turkey also offers lucrative export opportunities in the surrounding markets…

36

158

0

20

40

60

80

100

120

140

160

180

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Export ($ Billion) 2002 2014

Number of export products with over $1 billion

9 37

Number of export markets with over $1 billion

8 34

Share of top 5 countries (%) 47 31

Share of MENA (%) 13 28,6

Share of North America (%) 10 4,6

Share of EU (%) 57 43

Customs Union with the European Union

Free Trade Agreements with 25 countries

Source: Ministry of Economy, * In ratification process *

1. Albania 14. Tunisia

2. Bosnia & Herzegovina 15. Montenegro

3. Egypt 16. Serbia

4. Georgia 17. Chile

5. Iceland 18. Jordan

6. Israel 19. Mauritius

7. Lichtenstein 20. South Korea

8. Macedonia 21. Lebanon*

9. Morocco 22. Kosovo*

10. Norway 23. Ghana*

11. Palestine 24. Malaysia*

12. Switzerland 25. Moldavia*

13. Syria

Free Trade

Lucrative export opportunities are supported by custom union with the EU and free trade agreements with 25 countries…

Source: Ministry of Economy

With increasing export opportunities, the number of exporter companies have also increased with more companies from Anatolia..

2014

2002

Ge

ogr

aph

ic B

reak

do

wn

of

Exp

ort

er

Co

mp

anie

s

2014

31.731

63.587

30.000

35.000

40.000

45.000

50.000

55.000

60.000

65.000

Number of Exporter Companies

Private Equity and M&A Market in Turkey

Source: Deloitte

The strong macroeconomic fundamentals supported by a robust domestic market and lucrative export opportunities have created an attractive PE and M&A market in Turkey..

5,2

17,3

15

22

17,2

21

0

5

10

15

20

25

2009 2010 2011 2012 2013 2014

Turkish M&A Market ($ Bn)

0,7

0,9

1,2

1,6

2,1 2,1

0

0,5

1

1,5

2

2,5

2009 2010 2011 2012 2013 2014

Turkish PE Market ($ Bn)

101 190 237 253 215 236 8 24 46 57 35 36 # of Deals

# of Deals

200+ deals with and $16bn+ pear year

Source: Deloitte

Foreign investors have been a key driver of Turkish M&A market, realizing more than half of total M&A deals over the past 6 years..

2,2

10,4 11,1

13,0

5,2

8,0

0

3

6

9

12

15

2009 2010 2011 2012 2013 2014

M&As by Foreign Investors in Turkey ($ Bn)

16

,2%

11

,5%

8,5

%

8,1

%

7,9

%

5,2

%

5,0

%

3,8

%

3,2

%

3,2

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Share of Top 10 Investing Counrties by Number of Deals (2009-2014)

Financial Services Manufacturing

Energy Retail

Food & Beverages IT

Healthcare Media

Source: Abraaj

A number of sectors are poised to attract more M&A and PE activity..

Financial

Services

Consumer-Driven

Large Urban Centers Export-Driven

FMCG

Retail Consumer Durables & Apparel

Consumer Services

Food & Beverage

Education Logistics

Technology &

Media Healthcare

Utilities Business Services Niche

Manufacturing Basic

Materials

Turkey’s 100 fastest growing companies are offering opportunities both for M&A and PE investors..

Turkey’s 100 Fastest Growing Companies by Numbers

Source: TEPAV, 3-year growth: 2010-2012

Source: Deloitte

Fastest growing Turkish IT companies are also attracting international attention and offering opportunities for M&A and PE investors..

Number of Companies in EMEA’s 500 Fastest Growing IT Companies

86

67

45 43 42

36 32

24 22

18 15

93

86

54

48

53

27 23 23

18

7

15

0

10

20

30

40

50

60

70

80

90

100

2014 2011

D i s c o v e r t h e P o t e n t i a l

Togetherness

Both East & West

World

Meeting

Harmony

Innovation

Synergy

Growth