PRIVATE EQUITY IN TURKEY

İlhami Koç

June 2008

2

SMEs are having trouble in finding the sources to finance their growth.SMEs are having trouble in finding the sources to finance their growth.

2

MAJOR CHARACTERISTICS OF TURKISH FINANCIAL SECTOR

Significant Savings Deficit

Dominated by Banks

Credits are Mainly Short-Term

Public Offering is The Only Financing Source of Capital Markets

3

0,0 0,0

0,4

2,12,3

2,5

17

7

10

5

22

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

2003 2004 2005 2006 2007 2008

Invest. Volume (bn $) Number of Invest.

Private Equity Investments in Turkey (2003-2007)

Source: Mergermarket, as of 6 June 2008

26.6%*6.9%3.2%0.2%2.1% 7.2%

PE’s Share in M&A Market

Industry is growing despite unfavourable market conditionsIndustry is growing despite unfavourable market conditions

TURKISH PE INDUSTRY GROWTH

Number of Exits

22

2

3

4

Vakıf (3)

I-lab (1)

Is Private Equity (2)

Turkven Fund I (0)

AIG (2)

0

50

100

150

200

0 50 100 150 200

Large Funds(>US$ 300m)

Mid-Large Sized Funds(>US$ 100-

300m)

Small-Mid Sized Funds(<US$ 100m)

Venture Capital

Amount Invested (*)

4

Office in Turkey with a dedicated fundOpportunistic / Regional with an office in Turkey

Does not have an office in TurkeyBubble size indicates the number of deals done by the fund

Only 5 years ago, number of active players in Turkish PE market was limited to 5 Only 5 years ago, number of active players in Turkish PE market was limited to 5

TURKISH PE INDUSTRY GROWTH – Market Position of PE Funds 2002

5 5

Turkish private equity market is increasingly attracting significant attentionTurkish private equity market is increasingly attracting significant attention

(*) Not drawn to exact scale

Office in Turkey with a dedicated fundOpportunistic / Regional with an office in Turkey

Does not have an office in TurkeyBubble size indicates the number of deals done by the fund

TURKISH PE INDUSTRY GROWTH – Market Position of PE Funds 2008

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PE Fund Number of Deals % in total

1. Is Private Equity 10 23%

2. Turkven 7 16%

3. Citi Venture Capital International (“CVCI”) 3 7%

4. Kobi Private Equity 3 7%

Remaining 32 44%

TOTAL 43 100%

PE Funds’ Activity – Total Number of Deals (2003-2007)

PE Funds’ Activity – Total Deal Volume (2003-2007)

TOTAL 7,300 100%

Is Private Equity is the market leader in terms of number of deals whereas BC Partners has made the largest investment in Turkish market history.

Is Private Equity is the market leader in terms of number of deals whereas BC Partners has made the largest investment in Turkish market history.

* Excluding transactions completed by consortiums with strategic players, including leverage* Excluding transactions completed by consortiums with strategic players, including leverage

TURKISH PE INDUSTRY GROWTH – Most Active Players

PE Fund * Deal Volume (000 US$)

% in total

1. Moonlight Capital (BC Partners&Turkven) 1,675 23%

2. Kohlberg Kravis Roberts (“KKR”) 1,252 17%

3. Texas Pacific Group (“TPG”) 810 11%

Remaining 3,563 49%

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No Acquirer Origin Target Sector StakeDeal Amount (million US$)

1. İş Private Equity Turkey Turkmed Healthcare 27.0% 2.502. İş Private Equity Turkey Ortopro Medical Devices Healthcare 29.5% 6.003. İş Private Equity Turkey Ode Insulation Building Materials 17.2% 5.004. Kohlberg Kravis Roberts (KKR) USA UN Ro-Ro Logistics & Transportation 97.6% 1,251.605. Fina Holding and Turkon Holding Turkey Kumport Infrastructure 98.3% 255.006. Abraaj Capital Limited UAE Acıbadem Healthcare Services Healthcare 21.7% 162.507. Citigroup Venture Capital International UK Beymen Department Store Retail 50.0% 142.608. Global Investment House Kuwait FFK Fon Leasing Financial Services 60.0% 120.009. Actera Turkey Mey Alcholic Beverages Food & Beverage 10.0% 81.00

10. Julius Baer Holding/DEG Switzerland, Germany Şafak Hospitals Healthcare 60.0% 60.0011. Citigroup Venture Capital International UK Boyner Department Store Retail 30.0% 46.1012. Soros Fund Management USA Graniser Building Materials 60.0% 45.0013. SU Private Equity Turkey Fida Film Film Production 67.0% 30.1514. NBK Capital Equity Partners Kuwait Yudum Food Food & Beverage 100.0% 25.5015. Templeton Strategic Emerging Markets Fund USA Tat Canned Food Food & Beverage 10.3% 17.0916. Ahlström Capital Finland Elbi Electricity Manufacturing 50.0% 10.0017. KOBİ Private Equity Turkey Makim Machinery Manufacturing 38.0% 2.0018. KOBİ Private Equity Turkey İntermak Machinery Manufacturing 40.0% 1.5019. Bancroft Group UK Eko Finance Factoring Financial Services 30.0% N/D20. Abraaj Capital Limited UAE Acıbadem Health & Life Insurance Financial Services 49.9% N/D21. Colony Capital USA Mars Entertainment Entertainment 55.0% N/D22. Global Environment Fund USA Dentistanbul Healthcare N/D N/D23. HAL Investments Netherlands Fahri Kuz Optics Retail 60.0% N/D24. The Great Circle Fund USA Balnak Logistics Logistics & Transportation 49.1% N/D25. Turkven Turkey Provus IT 70.0% N/D

TURKISH PE INDUSTRY GROWTH – Transactions in 2007

Entrance of big players increased size and changed the type of deals Entrance of big players increased size and changed the type of deals

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14 Feb 2008 Migros Turk T.A.Ş. Retail Moonlight Capital 1,675 50.83

3 Sep 2007 UN Ro-Ro LogisticsKohlberg Kravis Roberts & Co.

1,240 87.90

13 Apr 2006 Mey Icki Sanayi ve Tic. A.S. Consumer Texas Pacific Group 810 90.00

12 Jan 2008 Acıbadem Sağlık Hizmetleri Healthcare Abraaj Capital 443 34.32

26 Mar 2008 Başkent Doğalgaz Energy ABN AMRO Capital   358 22.23

25 Dec 2006 TAV Havalimanlari Hold.A.S.   AirportBabcock And Brown Inc ; Goldman Sachs  

315 21.00

31 Oct 2005 Digiturk Media Providence Equity Partners 256 47.00

28 Nov 2006 Biofarma Pharmaceuticals Pharma Citibank Venture Capital 200 100.00

26 May 2006 Deva Holding Pharma GEM Global Equities Man. 162 47.39

2 May 2007 Beymen RetailCitigroup Venture Capital International  

143 50.00

Source: Mergermarket

DateDate TargetTarget SectorSector BuyerBuyer Size ($mn)Size ($mn) Stake (%)Stake (%)

TURKISH PE INDUSTRY GROWTH– Top 10 Deals

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INDUSTRY

EXIT OPTIONS

INVESTMENTSIZE

EXPECTEDRETURN

PARTNERSHIPSTRUCTURE

TRENDS IN THE MARKETS

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TRENDS IN THE MARKET – Industry

1995 – 2001995 – 20044 20020055 – 2008 – 2008

Source: Private Equity Report in Turkey ,2007

Investments have been focused on mainly consumer goods, services and health industriesInvestments have been focused on mainly consumer goods, services and health industries

Consumer Goods

21%

Financial Services

16%Services,

Health28%

Production14%TMT

21%

Production2%

Financial Services

5%Energy

5%TMT4%

Services,Health46%

ConsumerGoods38%

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20032003

2,2%

15,6%

82,2%

20052005 20072007 20082008

20,8%

5,0%2,5%

8,3%

63,4%25,4% 55,9%

7,6%1,7%

9,4%

<50 mn$ 51 - 250 mn$ 251- 500 mn$ 501 - 1000 mn$ >1000 mn$

24,1%

6,9%

10,4%

10,3%48,3%

Thanks to newcomers, ticket sizes are growing. Thanks to newcomers, ticket sizes are growing.

TRENDS IN THE MARKET – Investment Size

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1995 – 20051995 – 2005 2006 – 20082006 – 2008

Minority100%

TRENDS IN THE MARKET– Partnership Structure

Majority investments become more popular Majority investments become more popular

Source: Private Equity Report in Turkey ,2007

Buyout31%

50-508%

Minority33%

Majority28%

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Private Equity investments in Turkey generally seek for 15-25% returns on USD termsPrivate Equity investments in Turkey generally seek for 15-25% returns on USD terms

TRENDS IN THE MARKET – Expected Returns

InvestmentInvestment DurationDuration Invt. (mn$)Invt. (mn$) Return (%)Return (%)

EBITDA multiples are around 5-8.

During the last a few years, PE funds decreased their IRR expectation.

ExamplesExamples

19,72%*3,54 yearsStep Halı

45,75%26,014 monthsTüyap

30,25%11,53 yearsCinemars

64,64%*4,019 monthsBeyaz Fleet Leasing

* Beyaz Fleet Leasing and Step Halı returns have been calculated from ISE data.

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TRENDS IN THE MARKET – Exit Options

Public Offering

Strategic Sale

Financial Sale

Management / Owner Buyout

All exit options are available in the marketAll exit options are available in the market

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As a result of recent global economic developments, financing cost is increasing.

FINANCINGFINANCING

NEWCOMERSNEWCOMERS

TRANSACTION TRANSACTION VOLUMEVOLUME

EXPECTED EXPECTED RETURNRETURN

Despite market conditions, new funds are coming

Ticket sizes will remain high.

An internal rate of return will be around 15%-25%.

EXPECTATIONS

EXITSEXITS Because of market conditions, exit will be harder than before.

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Accessing Proprietary Deal Flow

Foreign funds’ need to utilize intermediaries to generate deal flow creates an “auction” environment, high

competition resulting in increase in entry prices

Deal Structuring

PE funds’ requirement for risk control mechanisms (exit priorities, drag-along, tag-along rights) and capital

protection clauses (dividend privileges, minimum return guarantees) not well understood by founding

shareholders

Determining Past Performance of Companies – Due Diligence

Macroeconomic history of high inflation, fluctuating FX rates and volatility

Lack of accounting and IT infrastructure

Business Culture, Corporate Governance and Transparency

Family owned companies reluctant to have an outside shareholder

Complicated shareholding structures, hard to identify “related-parties”

Management Recruiting and Retaining

Scarcity of result-oriented management talent that can deliver PE expectations

Management backgrounds relatively difficult to reference

LOCAL CHALLENGES TO CONSIDER

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İŞ Kuleleri Kule-2 Kat:124. Levent 34330 İstanbul TurkeyTel: (+90212) 350 20 00Fax: (+90212) 350 20 01

Fenerbahçe, Fener Kalamış Cad. Tibaş-Belvü Sitesi A2 Blok Daire:3Kadıköy 34726 İstanbul TurkeyTel: (+90216) 542 72 00 Fax: (+90216) 542 72 01

HEADOFFICE

KALAMIŞBRANCH

ANKARABRANCH

Tahran Cad. No:3/8 Kavaklıdere 06700 Ankara TurkeyTel: (+90312) 455 26 50Fax: (+90312) 466 26 62

İZMİRBRANCH

Akdeniz Cad. No:14 Birsel İş Merkezi Daire:501Alsancak 35210 İzmir Turkey  Tel: (+90232) 488 90 00  Fax: (+90232) 488 90 01

Jeltozbekova Street 97 Block A2 Floor:2 Almaata 050051 KazakhstanTel: (+7727) 334 05 08Fax: (+7727) 334 05 09

ALMA ATAREPRESENTATIVE

OFFICE

MAXIS SECURITIES LTD.8 Princes Street London EC2R 8HL U.K. Tel: (+44207) 397 1431 Fax: (+44207) 726 2566

SUBSIDIARYKöybaşı Caddesi İskele Çıkmazı No:277 Yeniköy 34464 İstanbul TurkeyTel: (+90212) 363 01 00 Fax: (+90212) 363 01 01

YENİKÖYBRANCH

www.isyatirim.com.trwww.isinvestment.com

Süleyman Seba Cad. No:44 B1 Blok Daire:10 Akaretler 34357 İstanbul TurkeyTel: (+90212) 326 87 00 Fax: (+90212) 326 87 01

AKARETLERBRANCH

Havalimanı Kavşağı EGS Business Park B3 Blok No:470 Yeşilköy 34149 İstanbul TurkeyTel: (+90212) 463 20 00Fax: (+90212) 463 20 01

YEŞİLKÖYBRANCH

Yapı Kredi Plaza C Blok K:9 Bölüm 25/B 4. Levent 34330 İstanbul TurkeyTel: (+90212) 282 00 18Fax: (+90212) 282 00 19

İSTANBULREPRESENTATIVE

OFFICE

IS INVESTMENT

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Turkish PE industry promises a significant growth potential with 7% weight of PE deals in total deal volume compared to global figure of 45%.

Turkish PE industry promises a significant growth potential with 7% weight of PE deals in total deal volume compared to global figure of 45%.

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Sounce: Mergermarket, Dealwatch

TURKISH vs. GLOBAL PE INDUSTRY – Share in Total Deal Volume*

Other M&A55%

PE45%

Other M&A93%

PE7%

Global PE Activity Turkish PE Activity