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Turkish Technology Sector M&A report 2017

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Turkey Mergers & Acquisitions
Technology and Digital
2010-2016
August 2017
About the Authors
Burcu Bıçakçı Ersoy is a mana...
2
Executive Summary
As an executive search and leadership
consulting firm; Egon Zehnder‘s Technology
and Communications Pr...
3
Deal Statistics
In 2016, our analysis shows 91 transactions; this is up 100% from the 46 transactions which were
announc...
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Turkish Technology Sector M&A report 2017

  1. 1. Turkey Mergers & Acquisitions Technology and Digital 2010-2016 August 2017 About the Authors Burcu Bıçakçı Ersoy is a management consultant with the Istanbul office of Egon Zehnder. She leads the Telecommunications practice group globally and Digital practice in Turkey. You can contact her by e-mail at burcu.bicakci@egonzehnder.com Aslı Tekinbaş is a researcher with the Istanbul office of Egon Zehnder. You can contact her by email at asli.tekinbas@egonzehnder.com.
  2. 2. 2 Executive Summary As an executive search and leadership consulting firm; Egon Zehnder‘s Technology and Communications Practice Group has a special focus on interpreting the disruptive forces of “digital” across industries and its talent implications. Egon Zehnder emphasizes that a fundamental element of digital transformation is about the talent that drives the change; and digital start-ups are the engine to grow talent in this space. Mergers and Acquisitions (M&A) in the ecosystem of technology and digital companies is a major source of information demonstrating how internet businesses are evolving and the disruption they would create in other industries over time. In Turkey’s technology and digital landscape; the transaction sizes still remain to be low; but the number of transactions increased significantly in the past 5 years. This report analyses all the M&A activity in the technology and digital ecosystem between 2010 and 2016 in Turkey and tries to shed light to the evolution of the market and the talent landscape associated with it. Unfortunately; most of the deals in Turkey are made with undisclosed amounts; hence the analysis in this report is based on number of deals rather than the amount of investment flowing into deals. The research revealed that; • Despite the political and economic challenges Turkey has been going through since 2015 and which got worse in 2016, number of investments in the technology companies have significantly increased in 2016. Although we don’t have the data to report on the amount of investment; we also estimate that it has increased from 2015 to 2016. • The investment into the start-ups in Turkey is in the hands of an increasing number of angel investors, VCs and Angel Networks. There is limited interest from Private Equity funds to the technology companies; and the Venture Capitals invest very limited funds. Nevertheless, there is significant consolidation going on in a few areas (digital marketing agencies, systems integration, software, call center and outsourcing). • E-commerce and market place stays ahead of all the other industries in terms of keeping the investor focus and the growth potential is still there. Market place is gaining speed while e-commerce is slowing down. • Significant brain drain started and majority of the talent that leaves the country is in technology industry. Turkish engineers are highly educated and are in demand from all around the world. We expect the impact of this move to be negative in the short term, but might be positive in the mid-term if the country goes on a positive trajectory and such talent comes back more experienced or decides to invest into technology companies in Turkey.
  3. 3. 3 Deal Statistics In 2016, our analysis shows 91 transactions; this is up 100% from the 46 transactions which were announced during 2015. This is also the record high number of transactions since 2010. 2016 has been the most challenging year in the last 10 years; in terms of Turkey’s political and macroeconomic risks. (Numerous bombings, change of prime minister, assassination of the Russian ambassador, Coup d’etat in July). Despite the worrying atmosphere, it is a positively surprising sign to see that the number of investments in the technology space has increased. This is also a credit to the Turkish entrepreneurs, who were able to keep up the good spirit and demonstrate resilience to stress in difficult conditions. We do not have the complete data to report the amount of investment that flows into the transactions, but our estimates show that there is also a significant increase in the total amount of funds, if we only exclude the Digiturk investment of Bein Media that took place in 2015. Total Number of Deals per Year 2010 10 2011 34 2012 28 2013 85 2014 61 2015 46 2016 91
  4. 4. 4 Buyer Landscape In 2016, we have seen an increase in the number and diversity of active angel investors. Some of the “usual suspects” of 2015 still continued their investment activity (such as Nevzat Aydın, Selçuk Saraç and Sina Afra) while the most active investor of 2015; Hasan Aslanoba had less share in 2016. Unfortunately, two of the most promising investments of Hasan Aslanoba; tazedirekt.com and incir.com decided to close business in 2016 due to the difficult economic conditions. The new private investors that joined the club mostly come from serial entrepreneurs but also some corporate professionals and wealthy family firm owners. The latter two groups are very important for creating role models and bringing more funds and angel investor appetite to the ecosystem through word of mouth. The private equity investments stayed low in 2016. Private equity funds prefer investing into more mature industries rather than start- up companies; and the more mature part of technology companies hasn’t been their focus in 2016. The only PE transaction that took place was the acquisition of Taxim Capital of Netcad; an established Engineering and Design software company. On the contrary, VCs and Angel Networks have been more active in 2016 compared to the years before. ACT Venture Partners, BIC Angels, Earlybird, Hummingbird, Galata Business Angels, Aslanoba Capital, StartersHub, Şirket Ortağım are examples with few investments. Revo Capital was one of the most active VCs with 6 investments. V-Count, Peoplise, Digiform, Paraşüt, ACL Teslim and Cardtek were all investments of Revo Capital in 2016. 24 out of the 91 transactions in 2016 happened as an acquisition of a company by another; 11 of the 24 transactions happened between two Turkish companies and the rest were investments from foreign companies to Turkish companies. One of the most important foreign investments of the year was the acquisition of 48% of the shares of Netaş by the Chinese ZTE. The origin of countries investing into Turkish companies varies from USA to France, China, Japan, South Africa and Italy. We see a consolidation in marketing agencies for the past few years; again in 2016 there were few transactions in this context: Publicis Groupe’s acquisition of Digitouch and Publicis Yorum, Related Group’s acquisition of Semanticum, J.Walter Thompson’s acquisition of Wanda Digital are examples. Another industry where we start observing consolidations globally is call center and outsourcing industry. Turkey is no exception to this. Comdata’s acquisition of Win Bilgi İletişim Hizmetleri is an example that supports this trend. Finally, the traditional industries such as systems integration, distribution and value added reseller business models, telecommunication, software development houses are subject to consolidation, hence a considerable amount of transaction happened in this space.
  5. 5. 5 Industries of Interest Total number of Deals per Industry 2010-2016 Telecommunications 16 Marketplace 49 Services 6 Gaming 9 Digital Media and Content 27 Software 33 Internet Mobile Services 28 Payment Systems 17 E-commerce 72 Cybersecurity 4 Systems Integration 23 IOT 3 Price Comparison 3 Education 7 Digital and Mobile Marketing 26 Social Media Platform 6 Group Buying 5 Others 4 Distribution and VARs 11 Teknokent 6
  6. 6. Turkish e-commerce has exceeded 30 billion TL in 2016 and continues to grow more than 20% annually. (Actual growth from 2015 to 2016 has been 24%) This corresponds to 3,5% of all retail business in Turkey. E-commerce represents around 15% in developed economies like UK; hence there is still great opportunity in this segment in Turkey. E-commerce and marketplaces, which is a different version of e-commerce are the two leading categories of concentration for entrepreneurs and investors; as demonstrated by the graph above. It is important to note that the number of investments in e-commerce is slowing down while marketplace investments increase. This is the market reaction to the profitability problems of e-commerce companies as well as the balance sheet risk with regards to slow moving inventory. Marketplace business models address these problems with no stock on balance sheet, however profitability of such models can be lower than the standard e-commerce companies; and the customer experience standardization requires a great process discipline. In the following pages of this report, you can see the e-commerce versus marketplace graphs in the last years. Following the e-commerce category; Internet and Mobile Services; which is a very fragmented market; Digital and Mobile marketing which is still subject to consolidation and Digital Media and Content; are taking more interest from investors than the rest of the industries. Finally, we can see that traditional industries such as software and systems integration receive more interest than the rest of the industries; main drive of whose investments is consolidation. An important point to emphasize is the increased number of deals in software. Turkish software companies have started to demonstrate success, address customer needs well and become an attraction for investors looking for significant return of investments. Globally, Internet of Things (IOT) companies have already started to become a center of attention for investments. However we see a slower pick up of IOT company investments in Turkey. Turkish start up ecosystem is full of innovative IOT companies which are still to become visible and attract investments. E-Commerce 6 2010 1 2011 7 2012 13 2013 24 2014 14 2015 9 2016 4 Total number of E-commerce deals per year
  7. 7. 7 % of Deals in Different E-Commerce Verticals (Total of 72 deals between 2010-2016) Total number of Marketplace deals per year Sports 1% Tourism 8% Baby Care 4% Fashion 28% Food 11% Lifestyle 11% Presents 7% Private Shopping 18% Online Classified 2% House and Furniture 8% Automotive Spare Parts 2% Marketplace 2011 2012 2013 2014 2015 2016 1 3 7 7 11 20
  8. 8. 8 % of Deals in Different Marketplace Verticals (Total of 49 deals between 2010-2016) Traditional Business Models (Total of 73 deals between 2010-2016) Transportation 16% Health 2% Food and Beverages 6% Multicategory 6% Online Classified 23% Services 47% Distribution and VARs 15% Software 45% Systems Integration 32% Services 8%
  9. 9. 9 Digital Media and Content (Total of 27 deals between 2010-2016) Video 22% Lifestyle Content 30% Market Insight 4% Media technology 7% Music 4% Sports 11% Technology News 7% Pay TV and Broadcasting 4% News 11% Notable Deals in 2016 ZTE, a major international provider of mobile devices, telecommunication systems, enterprise and technology solutions, acquired 48.04% shareholding of Netaş Telekomünikasyon A.Ş. for 101 mio USD. ZTE is a Chinese multinational telecommunications equipment and systems company headquartered in Shenzhen. ZTE operates in three business units: carrier networks (54%), terminals (29%) and telecommunication (17%). ZTE’s core products are wireless, exchange, access, optical transmission, and data telecommunications gear; mobile phones; and telecommunications software. It also offers products that provide value-added services, such as video on demand and streaming media. ZTE primarily sells products under its own name but it is also an OEM. ZTE is one of the top five largest smartphone manufacturers in its home market. Netaş, Turkey’s telecom infrastructure provider, was established in 1967 as a joint venture company between Turkish PTT and Northern Electric Company Limited (Nortel Networks Corporation) of Canada with the aim of supplying Turkey with locally manufactured telecommunications equipment. Nortel’s 53.13% stake in Nortel Netaş was acquired by One Equity Partners (OEP) and Rhea Investments for $68 million in December 2010. In 2011, Netas agreed to buy 100% stake in Probil, local enterprise VAR, for $31 million. Probil has been providing a wide range of services from industrial solutions to business solutions, systems integration, outsourcing, care and maintenance services, network solutions and consultancy since 1989. Netaş also acquired 10 % shares in Kron, a local
  10. 10. 10 OSS software development company. Kron Telekomünikasyon Hizmetleri A.Ş. produces software solutions for national and regional telecom operators and service providers. Netaş acquired Group A shares of the company in 2013 in line with the strategic growth goal and the purpose of offering innovative solutions to its customers. Having strengthened its capabilities in the field of systems integration with the acquisition of Kron, Netaş now provides a wider range of end-to-end solutions to its customers in Turkey and in the region. Complementing its 40 years of experience in the area of telecommunications and local technology, Netaş has expertise in the area of wireline and wireless voice data communications and optical infrastructure. Turkey Talent Landscape As the world becomes digitalized and entrepreneurship becomes a viable option as a career; the talent landscape starts evolving in a new direction. • New graduates – More and more graduates from top universities consider joining start- ups or founding their own companies after school. Increasingly, there are business angel networks, incubation centers, entrepreneurship classes that are getting into the lives of these young individuals. Seeing the young billionaires who were not very different from them when they started their businesses are inspirational role models for the young population. This is a sign for a better future of Turkish start up ecosystem in 5 years from now; given that funding is made available to boost this population’s ideas. • Young and innovative digital talent – This is the most demanded talent in the market; both from start-ups in every stage and corporate companies to play key roles in their digital roles or digital transformation journey. This group can be described as; 5-15 years experienced (in digital roles in corporate structures, pure players or start-ups) digitally savvy talent with specific domain expertise. The domain examples are UI/UX, analytics, marketing, coding, mobility. This talent can be described with their strong passion for their domain, style of freedom and casualty, creativity, hard work, flexibility and low ego. They change jobs frequently and are priced above market average. They are self-confident and would only stick to a role if they feel the cultural fit to the environment. They are in the edge of running their own business and continuing a corporate career; most have experience in both sides of the table. • Mid-career; experienced corporate executives – Digitally savvy experienced executives started to grow a tendency to dive into the world of digital ventures during a career break or with an intentional leave from their corporate careers. While some of these executives become successful, some end up going back to corporate careers; since finding capital is not easy and their lives and families don’t give them the flexibility to burn money for a long time. Some members of this group try to run a start up as a side business to core responsibilities; however this is generally not an effective model for creating a successful venture. Some act as investors but their funds are limited; hence significant impact doesn’t come from this group. • Senior; very experienced corporate executives – These are generally top executives who leave their positions and have a passion for the
  11. 11. 11 world of digital start-ups, are very networked and credible which gives them the option of creating a fund or acting as an investor to a portfolio of companies to diversify risks. This model resulted in a few successful ventures to be funded and it is a promising career option for the executive leading the effort. • Retired executives from senior positions with board careers – These executives leverage their extensive network and market credibility and invest in some of the start-ups as angel investors or into funds as contributors to a portfolio. They are great sources to open doors and accelerate the growth of ventures; but their involvement in start-up boards might prove to create some bureaucracy and inefficiencies. In 2016, we started to observe a brain drain of talent in every level. The political and economic downturn in Turkey that started in 2015 and worsened in 2016 has been the reason for many high potential executives to give a fundamental decision to relocate out of Turkey. Most of the young and digitally savvy talent is demanded from western geographies such as UK and USA while more seasoned executives are more demanded from Middle East and Far East. This will for sure have a longer term impact to the Turkish start up ecosystem. Some of the talent that migrates from Turkey could have a positive spill-over effect if they later on invest in Turkish start-up companies, or if they would return in a few years with a deeper experience in entrepreneurship. Without a doubt, Turkey is going through challenging times for businesses that are trying to prosper; and talent is still the scarcest resource as a barrier to growth.
  12. 12. 12 Appendix Definitions and Scope • All deals from media industry that has a relevancy to digital transformation of media has been included as part of this study. For example transactions involving the ownership change of free to air TV channels or radio channels are excluded while digital and mobile marketing agencies are included. Digital and on demand broadcasting platforms such as Digiturk are included. • Definition of e-commerce vs marketplace: If the products visual presentation (i.e. studio); pricing; invoicing happens through the website, this is considered e-commerce. Platforms/websites; which facilitate the transaction by providing a platform and not directly invoicing the customer are called a marketplace • Definition of “Lifestyle”: All personal hobby items such as food, personal care, cinema, books, weddings, are classified as “lifestyle”
  13. 13. References • http://www.ey.com/Publication/vwLUAssets/MA_2016_Raporu/%24FILE/EY_MA_2016.pdf • https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/technology-media- telecommunications/TUBISAD-2017-eticaret-sunum.pdf • https://webrazzi.com/2016/06/15/publicis-groupe-turkiyeden-digitouchin-tamamini-satin-aldi/ • https://webrazzi.com/2016/03/02/hasan-aslanoba-tazedirekti-neden-kapattigini-anlatti/ • http://portal.netcad.com.tr/pages/viewpage.action?pageId=141754571 • https://www.prnewswire.com/news-releases/cardtek-joins-forces-with-mv-holding-and-revo- capital-to-become-a-top-10-global-fintech-player-574600351.html • http://www.fortuneturkey.com/comdata-turkiye-win-bilgi-iletisimi-satin-aliyor-36191 • http://ceelegalmatters.com/index.php/turkey/4635-bts-partners-and-gokce-attorney-partnership- advise-on-revo-capital-investment-in-v-count • https://egirisim.com/2016/07/15/insan-sayma-sistemleri-girisimi-v-count-revo-capitalden-14- milyon-dolar-yatirim-aldi/ • https://www.dunya.com/sirketler/revo-capital039den-2-sirkete-yatirim-haberi-320802 • https://www.dunya.com/sirketler/parasut-ribbit-capital-ile-ikinci-tur-yatirimi-kapatti-haberi-277114 • https://webrazzi.com/2015/02/25/bulut-tabanli-fatura-yonetim-uygulamasi-parasut-revo-capital- yatirim/ • https://index.co/company/revovc/overview • https://www.etohum.com/blog-tr/acl-teslim-250-bin-dolarlik-tohum-yatirimi-aldi/ • http://www.bthaber.com/bilisim-dunyasi/netcad-kuresel-bir-sirket-olma-yolunda-ilerliyor/1/19899 • https://www.crunchbase.com/organization/aslanoba-capital • https://www.crunchbase.com/organization/galata-business-angels • http://www.zte.com.cn/global/ • http://www.zte.com.cn/global/about/press-center/news/201612ma/1206 • http://www.reuters.com/article/zte-netas-telekom-acquisition-idUSL4N1E10WY • http://www.netas.com.tr/en/corporate/ • http://www.wpp.com/wpp/investor/financialnews/2016/aug/04/j-walter-thompson-company- agrees-to-acquire-majority-stake-in-wanda-digital-in-turkey/ • http://www.therelated.net/ 13
  14. 14. © 2017 Egon Zehnder International, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means — electronic, mechanical, photocopying, recording or otherwise — without the prior permission of Egon Zehnder. Amsterdam Athens Atlanta Bangalore Barcelona Beijing Berlin Bogotá Boston Bratislava Brussels Budapest Buenos Aires Calgary Chicago Copenhagen Dallas Dubai Düsseldorf Frankfurt Geneva Hamburg Helsinki Hong Kong Houston Istanbul Jakarta Jeddah Johannesburg Kuala Lumpur Lisbon London Los Angeles Luxembourg Lyon Madrid Malmö Melbourne Mexico Miami Milan Montreal Moscow Mumbai Munich New Delhi New York Oslo Palo Alto Paris Prague Rio de Janeiro Rome San Francisco Santiago São Paulo Seoul Shanghai Singapore Stockholm Stuttgart Sydney Tel Aviv Tokyo Toronto Vienna Warsaw Washington, D.C. Zurich Since 1964, Egon Zehnder has been at the forefront of defining great leadership in the face of changing economic conditions, emerging opportunities and evolving business goals. With more than 440 consultants in 69 offices and 41 countries around the globe, we work closely with public and private corporations, family-owned enterprises and nonprofit and government agencies to provide board advisory services, CEO and leadership succession planning, executive search and assessment, and leadership development. For more information visit www.egonzehnder.com and follow us on LinkedIn, Twitter, and Instagram.

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