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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 IS INVESTMENT What are the advantages of Private Equity investments and recent PE investments in Turkey? Efsane Cam Manager, Mergers and Acquisitions Is Investment What are the Advantages of Private Equity? Private equity provides long-term, committed share capital, to help the companies grow and succeed. The companies which are looking to start up, expand, buy into a business, buy out a division of the parent company, turnaround or revitalize a company, private equity could be a good solution. Obtaining private equity is very different from raising debt or a loan from a lender, such as a bank. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure. Private equity is invested in exchange for a stake in the company and, as shareholders; the investors’ returns are dependent on the growth and profitability of the business. Private equity backed companies have been shown to grow faster than other types of companies. This is made possible by the provision of a combination of capital and experienced personal input from private equity executives, which sets it apart from other forms of finance. Private equity can help the seller to achieve the ambitions for the company and provide a stable base for strategic decision making. The private equity firms will seek to increase a company’s value to its owners, Private Equity Medium to long-term. Committed until “exit”. Provides a solid, flexible, capital base to meet future growth and development plans of the company. Good for cash flow, as capital repayment, dividend and interest costs (if relevant) are tailored to the company's needs and to what it can afford. The returns to the private equity investor depend on the business' growth and success. The more successful the company is, the better the returns all investors will receive. If the business fails, private equity investors will rank alongside other shareholders, after the banks and other lenders, and stand to lose their investment. If the business runs into difficulties, the private equity firm will work hard to ensure that the company is turned around. A true business partner, sharing the risks and rewards, with practical advice and expertise (as required) to assist the business success. without taking day-to-day management control. Although the seller may have a smaller share of the company, within a few years the seller will benefit from the rapid growth of the company more than the previous structure. Private equity firms often work in conjunction with other providers of finance and may be able to help the company to put a total funding package together for the business. The Advantages of Private Equity over Senior Debt A provider of debt recollecting its investment back by interest and capital repayment of the loan and it is usually secured either on business assets or the shareholders’ personal assets. As a last resort, if the company defaults on its repayments, the lender can put the business into receivership, which may lead to the liquidation of any assets. A bank may in extreme circumstances even ask for liquidation of the company to secure the receipt of its funding. Debt, which is secured in this way and which has a higher priority for repayment than that of general unsecured creditors is referred to as “senior debt”. By contrast, private equity is not secured on any assets although part of the non-equity funding package provided by the private equity firm Senior Debt Short to long-term. Not likely to be committed if the safety of the loan is threatened. Overdrafts are payable on demand; loan facilities can be payable on demand if the covenants are not met. A useful source of finance if the debt to equity ratio is conservatively balanced and the company has good cash flow. Requires regular good cash flow to service interest and capital repayments. Depends on the company continuing to service its interest costs and to maintain the value of the assets on which the debt is secured. If the business fails, the lender generally has first call on the company's assets. If the business appears likely to fail, the lender could put the business into receivership in order to safeguard its loan, and could make the shareholders personally bankrupt if personal guarantees have been given. Assistance available varies considerably. may seek some security. The private equity firm, therefore, often faces the risk of failure just like the other shareholders. The private equity firm is an equity business partner and earns back its investment by the company’s success, generally achieving its principle return through realizing a capital gain through an “exit” which may include: • Selling the shares to another investor (such as another private equity firm) • A trade sale (the sale of company shares to another) • Selling their shares back to the management • The company achieving a stock market listing Although private equity is generally provided as part of a financing package, to simplify comparison we compare private equity with senior debt. Private Equity Compared to Senior Debt It can be clearly concluded that private equity investments not only a source of fund, but also a substantial opportunity for creating extra synergies in the globalizing business world like partnerships for companies. PE Investments in the World and Turkey • After 2001, US Venture Capital and Private Equity Funds has been steadily increased. • Compared to 2004, EU Private Equity funds created was increased by 100% in 2005, reaching to EUR 4.25 billion • Between 2002 and 2005, Europe Venture Capital Capital and Private Equity Funds compounded annual growth rate was 21.2%. Realized Investments’ (compounded annual growth rate was 8.64%. • The first attempts at private equity and venture capital activities in Turkey were made under state authority in the 1980s. However, the real private equity and venture capital activities began with the investments of foreign private equity/venture capital funds in Turkey. • The first attempts to arrange legal issues surrounding venture capital activities in Turkey were undertaken in 1993 and a Capital Markets Board (CMB) Decree dated 6 July 1993 enabled venture capital companies to be established in the form of Investment Trusts. • In 2006 nearly 10% of the total M&A deal is completed by the PE funds in Turkey with the help of domestic and international private equity funds’ increasing interest • Is Venture Capital Fund is the biggest local private equity fund in Turkey, founded on 5 October 2000. so far has realized 7 investments and 2 exits. It is the only one that has realized 2 exits in Turkey. • The table on page 11 summarizes the major PE funds and their investments realized in Turkey. PAGE 10
SEMI ANNUAL REPORT APRIL 2007 45,000 4,500 70,000 11,000 Total accumulated PE and realized PE investments in the US 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 4,000 3,500 3,000 2,500 Total PE funds accumulated in the 2,000 US (Million Euros) 30,000 1,500 Total PE investments realized in the US 20,000 1,000 (Million Euros) 500 Total number of PE 10,000 investments realized in the US 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Total accumulated PE and realized PE investments in Europe 60,000 50,000 40,000 10,500 10,000 9,500 9,000 8,500 8,000 Total PE funds accumulated in Europe (Million Euros) Total PE investments realized in Europe (Million Euros) Total number of PE investments realized in Europe Private Equity Funds Origin Investments Year Investment Amount Sector Is Venture Capital Turkey 1. Probil 2002 USD 3.2 million Systems Integrator 2. ITD 2002 USD 1.85 million Systems Integrator 3. Cinemars 2003 USD 11.5 million Cinema Chain 4. Nevotek 2003 USD 3 million Internet Protocols Solutions 5. Step 2004 USD 3.5 million Carpet and Home Accessories 6. Tuyap 2005 USD 7 million Fair Services 7. Beyaz Filo 2006 USD 4 million Fleet Rental AIG Blue Voyage USA 1. Galatasaray 2000 USD 20 million Sports Club 2. AFM 2001 USD 5 million Cinema Chain 3. For You 2006 USD +20 million Cosmetics Store Turkven/Advent Turkey / USA 1. UNO 2003 USD 8 million Floured Products 2. Intercity 2004 USD 5 million Fleet Rental 3. Trendtech 2005 USD 3 million Value Added Mobile Services 4. Digiturk 2005 Not Disclosed Digital Broadcasting 5. Pronet 2006 USD 4.2 million Security Services 6. Roma Plastik 2006 USD 70 million Plastics Bedminster USA 1. Hedef Filo Kiralama 2006 Not Disclosed Fleet Rental Kobi Venture Capital Turkey 1. Butek Makine 2006 USD 0.9 million Machinary Production 2. Makim Makine 2007 USD 2 million Machinary Production Vakif Venture Capital Turkey 1. Teknoplazma 1996 USD 0.5 million Technology 2. Inova Teknoloji 1999 USD 0.5 million Biotechnology 3. Ortadogu Yazilim 2000 USD 3.2 million Software Recent Private Equity Activities in Turkey Venture Capital Invested In Sector Year Investment Amount Citigroup Venture Capital International Beymen Branded Textiles 2007 USD 48 million (30%) Citigroup Venture Capital International Boyner Department Store 2007 USD 145 million (50%) KOBI Venture Capital Makim Makine Machinery Production 2007 USD 2 million (38%) KOBI Venture Capital Butek Makine Automobile Machinery Production 2006 USD 900,000 (45%) Goldman Sachs - Babcock & Brown TAV Airport Improvement and Management 2006 USD 315 million Bedminster Capital Hedef Fleet Fleet Rental 2006 Not Disclosed (100%) Citigroup VC ve Partners in Life Sciences Biofarma Pharmaceuticals 2006 Not Disclosed (USD 200-245 million) Credit Agricole Index Bilgisayar Computer Hardware 2006 USD 241 million (98%) Turkven/Advent Roma Plastik Plastic Covering 2006 USD 70 million (58%) ADM Capital Dardanel Food 2006 Not Disclosed (15%) ADM Capital Isiklar Holding Construction Materials 2006 Not Disclosed (20%) Ilab Holding Gittigidiyor.net Internet Portal Services 2006 Not Disclosed Ilab Holding Kariyer.net Internet Portal Services 2006 Not Disclosed (68%) Docar (The International Investor) Renty A.S. (Esas Holding) Fleet Rental 2006 USD 13 million Fiba Capital Enda Enerji Holding A.S. Energy 2006 USD 2.5 million (2.5%) The International Investor Adabank Finance 2006 YTL 45.1 million Renty (Esas Holding) Docar (TII) Fleet Rental 2006 USD 13 million Texas Pacific Group Mey Icki Alcohol Beverages 2006 USD 810 million (LBO, 90%) Islamic Development Bank, Global Investment House TAV Airport Improvement and Management 2006 USD 150 million Bankcroft Standart Profil Automobile Spare Parts 2006 USD 90 million (LBO, 100%) AIG Blue Voyage Fund For You Pharmacy / Supermarket 2006 USD 20+ million Turkven/Advent Pronet Security Services 2006 USD 4.2+ million Is Venture Capital Beyaz Fleet Rental 2006 USD 4 million Tiger Global Investment Partners Mynet Internet Portal Services 2006 Not Disclosed (35%) Tiger Global Investment Partners Lift Medya Media 2006 Not Disclosed Providence Digiturk Digital Broadcasting 2005 USD 250 million (40%) Fiba Capital M1 Tepe Alisveris Merkezleri Shopping Center 2005 Not Disclosed Is Venture Capital Tuyap Fair Services 2005 USD 7 million Turkven/Advent Trendtech Value Added Mobile Services 2005 USD 3 million Access Turkey Capital Group Olgun Celik Automobile Spare Parts 2005 Not Disclosed The International Investor Docar Fleet Rental 2005 USD 25 million CONTACT INFORMATION For International Markets Contact Name Mr. Ilkay Dalkilic E-mail idalkilic@isyatirim.com.tr For Turkish Markets Contact Name Ms. Caglan Yazici E-mail cyazici@isyatirim.com.tr For Almaty/Kazakhstan Rep. Office Contact Name Mr. Cengiz Macun E-mail cmacun@isyatirim.com.tr Website www.isinvestment.com PAGE 11
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