In spite of the political instability in the Middle East and recession between Russia and Ukraine in 2014, Turkey had a successful year in terms of mergers and acquisitions. Company merger and acquisition deals took a major blow due to the global economic crisis and Turkey recorded the lowest numbers of the last 6 years in 2011 in terms of mergers and acquisitions after 2009. While a record was broken on the basis of number and deal volume in 2012, new records were broken on the basis of deal number in 2013. In this setting, a very big change was not expected in 2014. However, the results were highly favorable considering the current conditions. In 2014, while 318 merger and acquisition deals took place, a significant increase in deal volume was also recorded. The “Merger and Acquisition Deals 2014” report issued by Ernst & Young (EY) also confirms these results. According to this report, there are 130 merger and acquisition deals in Turkey whose values were announced. The total value of these deals is $17.7 billion. The most striking point is that four deals costing over billion dollars took place and total value of these 4 deals constitutes 51% of all mergers and acquisitions. As for the deals over $100 million, they constitute 21% of all merger and acquisition deals. These numbers show that interest in SMEs in mergers and acquisitions continue without slowing down in 2014. In the report prepared by Ernst & Young, total deal volume in 2014 is estimated to reach up to $22 billion with merger and acquisition deals whose values are not announced. LOCALS HAVE THE MAJORITY WHILE FOREIGNERS’ INTEREST STILL CONTINUES It is seen that local investors constitute 74% of the mergers and acquisitions on the basis of deal volume. Whereas the majority of the local investors in 2013 continues in 2014, the fact that demand of foreign investors remain close to the previous year even though two selections were hold during the course of the year shows that the interest in Turkey is still strong. The sum of the mergers and acquisitions by local investors in 2014 reaches up to $13.1 billion, while foreign investors have made deals valuing $4.6 billion. While local investors have made 199 merger and acquisition deals, the number of mergers and acquisitions by foreign investors is limited to 119. While USA, England and Japan are ranked near the top of list in deals made by foreign investors on the basis of number, investors from EU countries seem to constitute the majority. Since EU countries are not efficient in deal volume, despite having significant numbers on a number basis, on the list in which investors from the USA are at the top in terms of deal volume, countries such as China, Malaysia and Singapore are observed to have reached much higher numbers. While the average investment amount by foreign investors is $123 billion in 2013, this number appeared to increase up to $150 billion in 2014. However, the average decreases to $64 billion when it is excluded two large-scale deals increasing this number. From this point of view, it would make more sense to say that, in 2014, foreign investors show a similar tendency as the previous year in terms of mergers and acquisitions. STRATEGIC INVESTORS HAVE THE MAJORITY One of the most striking developments in recent years was decreasing efficiency of private equity funds in mergers and acquisitions. Results in 2014 also show that similar tendencies remain. While the proportion of merger and acquisition deals by equity funds in Turkey on the basis of number is 14%, the sum of these deals is worth $343 million. It is worth noting that 73% of this deal is resulted from a single acquisition. Strategic investors, constituting 98% of the deal volume, continued to have the majority in 2014, like the last few years. In the report prepared by Ernst & Young, it is stated that 77% of the merger and acquisition negotiations in 2014 was made with strategic investors, indicating clearly to which direction the trend is going. ENERGY IN VOLUME, INFORMATICS IN NUMBER The sectors at the top in mergers and acquisitions have not changed dramatically in recent years. In 2014, like the previous year, the energy sector seems to remain on the top on the basis of deal volume and informatics on the basis of number. While having 36 deals and a volume of $6 billion in 2013, mergers and acquisitions in the energy sector reached up to 38 deals and a volume of $4.9 billion in 2014. In the report prepared by Ernst & Young, it is stated that the energy sector in 2015 will stand out with privatization tenders of the electricity generation assets, private sector operations, and new partnership and structuring operations in the electricity generation assets whose privatizations are completed, therefore strengthening the mergers and acquisitions. Another sector standing out in terms of mergers and acquisitions in 2014 was transportation. In the transportation sector, a deal volume of 3.9 billion took place with 13 deals. In the sector where a large-scale transfer of operational rights increases the deal volume, foreigners seem to become prominent on the basis of volume and locals on the basis of number. The financial service sector, ranked third with 1.7 billion USD in terms of deal volume in 2013, managed to increase its deal volume up to 2.8 billion USD in 2014. In the sector where 27 merger and acquisition deals took place in 2014, the biggest deal was that a share of 14.9% of Garanti Bank was acquired by BBVA with a cost of 2.5 billion USD. It seems that mergers and acquisitions focus especially on the companies on SME scale in informatics sector, which is placed on the top on the basis of number with 58 deals even though not even ranking among the first 10 sectors in terms of deal volume. PRICE IS THE BIGGEST PROBLEM Considering the duration of merger and acquisition deals, it is realized that deals mainly take place between 6 and 12 months (62%). In the survey conducted for 2014 by Ernst & Young, the fact that nobody stated that negotiations are concluded between 12-18 months and the number of those marking the period of less than 6 months is decreased compared to the previous year are the most striking points. This means that average deal duration increased in general compared to the previous year. As with previous years, ‘price’ was the number one agenda item in 2014 for unrealized mergers and acquisitions. In the survey conducted by Ernst & Young, 55% of the participants indicated that the main reason for merger and acquisition negotiations’ not coming to a conclusion was the disagreements in terms of ‘price’. Other important problems are ranked as corporate culture (20%), strategic coherence (10%) and required permissions (10%). The factors affecting the merger and acquisition deals the most are ranked as political stability (25%), developments in the international markets (23%), growth expectations (19%) and regional political developments (15%). Developments such as economic conjunctures (11%), interest rates and exchange (5%) have less importance. WHAT WILL HAPPEN IN 2015? Even if the positive trend continues in mergers and acquisitions on a global scale, especially the fact that EU economy’s not starting to recover somehow seems to keep affecting Turkey, having close trade relations with Europe. Survey conducted by Ernst & Young also confirms this information. 34% of the participants predict a deal volume of $16-20 billion in 2015, whereas 25% and 19% expects it to be $21-25 and $6-10 billion respectively. We see that 59% of the participants in total predict a deal volume over $15 billion, which is similar to the expectations revealed last year. INVESTORS ARE IN WAIT-AND-SEE MODE 2015 seems to be a year in which the investors will act upon an investment understanding of wait-and-see mode. The timing of the Fed’s interest rate hike, possible outcomes of European Central Bank’s monetary expansion and uncertainties regarding the developments in the Euro Zone can be listed as developments that might affect mergers and acquisitions. In the survey conducted by Ernst & Young, we see that a great proportion of the participants, namely 70%, predict that investment environment in Turkey will be stable in 2015. EYES WILL BE ON EU AND FED Whereas 57% of the participants state that the effect of possible recovery in EU on Turkey will be limited, the percentage of those indicating that it will have a profound effect remains limited to 23%. The percentage of participants stating that the effect will be low is 20%. A clear majority of participants (61%) predicts that the Fed’s interest rate hike process will also have a limited effect on Turkey. While 33% says that the effect will be profound, the percentage of those indicating that this effect will be low is only 60%. These numbers show that the Fed’s interest rate hike process will definitely affect Turkey, but this effect may be limited.