Some of my “aha” moments in Turkey occurred in visits with top management of the country’s two largest private corporations, Koc Industries and Sanko. I was greatly impressed with the level of management sophistication and the dominance of these companies in major industries – Koc’s in oil, natural gas, automotive, and plastics. Koc alone represents 7% of Turkey’s GDP.
A conversation with Koc’s CEO was especially enlightening:
- He noted that his regular meetings with employees, suppliers, and sales channel partners add up to a 300,000 person ecosystem. He acknowledged Turkey’s lack of innovation and entrepreneurship, however, and said it is a corporate objective to address these issues.
- I learned that, as a family conglomerate, Koc believes that successful companies must give back to Turkey. Koc focuses on three areas of community involvement – education, healthcare and cultural – and works via the Koc Foundation, Koc high schools, Koc University, Koc hospitals, and the Koc museum.
Sanko, in southeastern Turkey, is a giant private company involved with electrical power plants, textiles, cement, super-foam packaging, and heavy industry. Sanko’s CFO talked about how the Turkish culture respects hard work: Turks are focused on accomplishment and self-esteem achieved through competition and business success.
I also visited a giant international brand, Nestle, which in Turkey is much smaller than Koc or Sanko. The country manager, Reinhold Jacobi, said Nestle is working hard to make its corporate vision of “nutrition, health and wellness” a reality in Turkey.
For example, he pointed out, we are fast running out of potable water, yet protected industries throughout the world are given a pass by politicians. Jacobi says it takes 6,000 to 9,000 liters of water to make just one liter of bio-fuel (so growing corn, as we do in the US, to make ethanol is crazy!), and that 70% of the world’s water is used to produce food – which is incredibly inefficient. Nestle is acquiring water businesses, but bottled water is politically controversial because it is a high-priced product and is packaged in a plastic bottle.
Jacobi also mentioned that Turkey processes 70% of the world’s hazelnuts and is a major pistachio producer, but Nestle sees foods such as these as vulnerable to bans as obesity expands across the globe. The company is reducing sugar and salt in its recipes as it aims to make its products more nutritious.
Finally, I visited Bridgepoint, the largest European private equity firm in Turkey, where I met with managing partner Jason McGibbons. With a nine-person staff, Bridgepoint is looking for opportunities to achieve two- and three-fold returns – returning original investor capital is a higher priority than exceptional ROI. Bridgepoint likes spin-out companies that can be built into strong, independent brands. One example of a successful acquisition that Bridgepoint has internationalized is an auto vehicle inspection business to which Bridgepoint was able to bring best practices.
Until recently, McGibbons said, there have been only about 1.5 private equity deals per year and very few successful exits. In 2012, however, things are changing for the better. He believes that we may see as many as 10 deals of $100+ investment consummated this year. Turkey is viewed as internationally friendly, so a frequently-used deal structure is to first acquire a minority stake and see how the relationship develops over the first 18 months. A major hurdle is the high cost of acquiring companies in Turkey, which can run as high as 15 times the EBITDA (earnings before interest, taxes, depreciation and amortization).
Turkey is ethnically very complex, yet it is a successful democracy. Turkey is one of the most active and loyal NATO member countries, and a strategic partner for EU security. It is also the strategic key for the EU’s energy pipeline: The EU has limited natural oil and gas of its own, so most oil and gas must pass through Turkey to get to the EU from Turkey’s oil-rich neighbors.
Turkey’s ruling party AKP (Justice and Development Party), won a 55% majority in the most recent election and is expected to remain strong; all the other political parties are losing ground. Yet, while most Turks acknowledge the success of Prime Minister Tayyip Erdogan and the AKP party, I heard considerable suspicion about Erdogan adopting a more Islamic religious tilt to the country. This was expressed by senior executives, who would prefer a tilt toward the West rather than getting involved in Turkey’s Middle East flank after the Arab Spring.
In 2013, another new constitution will replace Turkey’s 1982 constitution. Erdogan’s term limit as Prime Minister will be up, and he is expected to try to become president, replacing Abdullah Gul, who has served as president since 2007.