Turkey is having its best year for takeovers since 2008,recording better growth than any of the largest emerging markets asEurope's fastest expanding economy lures buyers from Diageo Plc. toGoldman Sachs Group Inc.

The value of transactions involving Turkish targets hasincreased 59 percent annually to $8.8 billion, the highest levelsince Lehman Brothers Holdings Inc. failed in September 2008,according to data compiled by Bloomberg. Deals dropped this year inBrazil, India and China, while mergers and acquisitions grew 50percent in Russia, the data show.

Turkey's $735 billion economy grew 8.8 percent in the secondquarter, faster than India's and more than four times the eurozone's expansion, as credit growth spurred consumer demand. Thecentral bank has taken the most aggressive steps in emergingmarkets this year to guard the economy against a global slowdown,cutting interest rates three times since December while borrowingcosts rose in the so-called BRIC nations.

“What has brought Turkey into focus along with BRIC countries isthat it combines high levels of potential growth with large size,”said Emre Yildirim, executive director of M&A at JPMorgan Chase& Co. in Istanbul, the leading adviser on Turkish transactionsthis year, according to Bloomberg data, in response to e-mailedquestions. “Turkey is large enough to move the needle for manyglobal companies.”

Acquisitions
Diageo, the London-baseddistiller, bought Turkish spirits maker Mey Icki for $2.1 billionin February, while Jersey-based Vallares Plc, an oil investmentcompany run by former BP Plc Chief Executive Officer Tony Hayward,combined with oil field developer Genel Energy International Ltd.in a $2.1 billion all-share reverse takeover last month. Goldmanagreed to buy 26.5 percent of power producer Aksa Enerji Uretim ASfor about $450 million, Aksa Chairman Cemil Kazanci said July25.

While Turkey's benchmark ISE National 100 Index is down 14percent in 2011, the measure rallied 10.9 percent last month, thebest performance among 94 indexes tracked by Bloomberg.

“Despite all the global uncertainties and risks, it seems as ifeveryone wants a piece of Turkey,” Kerim Kotan, managing directorat Pragma Corporate Finance, an Istanbul-based M&A adviser,said in an interview at his Istanbul offices. “Over the past 15years in investment banking in Turkey, I cannot recall a periodwhen we have been busier.”

Family Businesses
Pragma expects to closeeight deals and sign another five by the end of the year, Kotansaid. The company, with 23 bankers, is currently working with aforeign energy company seeking to buy assets worth more than $1billion, he said.

New York-based Cerberus Capital Management LP, whose chairman,former U.S. Vice President Dan Quayle, was in Istanbul yesterday toannounce a joint investment initiative with Turkish broker GarantiSecurities, said it's planning about 10 buyouts or stake purchasesin Turkish family-run businesses with an equity size of $50 millionto $250 million each.

“International investors, especially Europeans, started pursuingTurkish companies from the beginning of the third quarter of 2010as Turkey is one of the fastest growing emerging markets,” saidBasak Vardar, a partner in the mergers and acquisitions division ofDeloitte & Touche LLP in Istanbul, who forecasts deals mayreach $18 billion this year. “I am expecting this trend toaccelerate into next year.”

'Core Market'
Next year could be “the year ofM&A for Turkey,” according to Sinan Borovali, a foundingpartner at Karatas Yildiz Borovali, an Istanbul law firm thathelped Turkish social gaming developer Peak Games raise an initialround of funding from German venture capital firm HummingbirdVentures. “Turkey has become part of the 'core market' defined bymost investment and private equity funds due to its stable bankingand well- regulated financial system.”

Private equity funds that invested in Turkey five to six yearsago in the first “gold rush to Turkish companies” are also nowlooking to exit, which should help encourage M&A activity nextyear, Borovali said.

With concerns growing that the global economy is headed for arecession though, the expansion in Turkey is beginning to slow. Thenation, which sends half its exports to Europe, is showing a recordcurrent-account deficit. The lira is down 18 percent against thedollar this year, the worst-performer among 25 emerging-marketcurrencies tracked by Bloomberg, even as the central bank spentmore than $3 billion since Aug. 5 in an attempt to stem thedeclines.

The lira gained 0.8 percent to 1.8730 per dollar at 6:00 p.m. inIstanbul. It fell to an intraday record low of 1.9096 to the dollaryesterday.

Slowing Economy
The International MonetaryFund forecasts gross domestic product growth will slow to 2.5percent next year while the median estimate in a Bloomberg surveyof five economists is for a 3.7 percent expansion. The IMF expects7.5 percent economic growth this year.

“There has recently been a sharp reversal in growth dynamics,”JPMorgan economist Yarkin Cebeci said in an e-mailed report fromIstanbul. “Loan growth has lost momentum and consumer sentiment hasworsened significantly in recent months.”

Turkey's foreign-currency debt is rated two levels belowinvestment grade by Moody's Investors Service, on par with Jordanand the Philippines, while Fitch Ratings has Turkey one level belowwith a positive outlook. Standard & Poor's assigned aninvestment-grade ranking to Turkey's local-currency debt last weekwhile keeping the foreign-currency rating two levels below.

Yields on Turkish benchmark two-year bonds have dropped to 8.54percent from 24 percent in October 2008, at the peak of the crisisbrought on by the collapse of Lehman Brothers.

Biggest Buyers
Turkish companies were targetsin 83 transactions this year, compared with 79 transactions worth$13.1 billion for all of last year, data compiled by Bloombergshow. The average disclosed deal size is $198 million, with 93percent of the buyers coming from abroad and thebiggest foreign buyers are from the U.K., the U.S.and Russia.

The value of deals totaled $23.2 billion in India, $35.9 billionin Russia, $84.9 billion in China and $71.8 billion in Brazil thisyear, according to Bloomberg data.

Acquisitions are taking place across the economy. Naspers Ltd.,Africa's biggest media company, bought 71 percent ofdiscount-shopping website Markafoni for an undisclosed sum on July7. Vienna-based Verbund AG and Haci Omer Sabanci Holding AS offered$1.5 billion to buy a power grid in Istanbul.

Health
Deals in the works include AcibademSaglik Hizmetleri & Ticaret AS, a hospital chain with a marketvalue of $1.3 billion. Owners Abraaj Capital Ltd. and Turkey'sAydinlar family said they signed a non-binding joint ventureagreement with Khazanah Nasional Bhd of Malaysia in a statement onSept. 30.

Drugmaker Abdi Ibrahim Ilac Sanayi & Ticaret AS, energyproducer Akenerji Elektrik Uretim AS and airport operator TAVHavalimanlari Holding AS are among others up for sale, according tostatements by the companies and people familiar with thetransactions.

Turkish mergers and acquisitions are being driven bytransactions in power, infrastructure, services, private equity-driven food and consumer retail, and healthcare, Metin Ar, chiefexecutive of Garanti Securities, said in an e-mailed response toquestions. Ar is advising Turkey's asset sales agency on the saleof the gas distribution grid in Ankara, and a Turkish-Italian groupon the purchase of roads and bridges.

Turkish banks have attracted some of the country's biggestM&A deals. Spain's Banco Bilbao Vizcaya Argentaria SA bought a24.9 percent stake in Turkiye Garanti Bankasi AS, Turkey's largestlisted bank, for $5.8 billion last year, and National Bank ofGreece bought lender Finansbank AS for around $4.5 billion in 2006.Finansbank's market capital, at $4.1 billion, is now bigger thanits parent company's $2.8 billion.

Turkey's growth helped create “a completely differentenvironment,” Memet Yazici, director of Rhea Girisim AS, theIstanbul-based private equity firm whose stock gained 810 percentlast year, said in an interview. “Both private equity and mergerand acquisition guys are seeing Turkey as the next hot spot, and Ifeel like most companies are for sale here.”

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