Wednesday, March 08, 2017
There is a specialization in the markets defined as "Mergers and Acquisitions" (M&A). The founders who set up a company that makes good profits are aging over time. They can not catch up with every job. They are technologically lagging behind in computer age. Deciding on each technical and commercial problem is getting tougher in the fast developing international markets.
If the company is working in a good way, if it is well managed, it makes money, it makes profit, its value rises. But younger generations who are expected to take over the company are sometimes unrelated or uninterested to the core business. They want to make other things.
Foreigner investors may get interested in this valuable company. The company is being evaluated by independent rating agencies. Eventually the company is sold in the end. Former owners take their share, and retire to their corners. Some of them stay professional for a while because they know how the company works. When this transition period is over and new staff members are employed, then their work is over.
Deloitte has the most comprehensive work on domestic company sales. The "Annual Turkish M&A Review 2015" report published in January 2016 explains very important details. The privatizations in the Turkish energy market are evaluated within the context of M&A capital. In January 2017, the 2016 M&A report was released. The total M&A figure has dropped a bit. However these reports tell the history. We will make the first estimates of the future forecasts here. These are just estimates, which can change over time.
In the past few years we have witnessed the hands-on change of ownership of a large number of energy companies in our domestic energy market. For example, in 478 Mwe Trakya Elektrik, first the foreign US company's share is transferred to domestic partners and then the domestic partners sold their majority shares to the Russian investor. In our markets there are other combined cycle thermal power plants for sale in the form of majority share sales on the agenda. There are serious discounts on sales prices. Iskenderun Sugözü 1360 Mwe imported coal power plant majority shares were sold. The new owners decided on hold for the third unit investment.
Expert investors who organize M&A earn good money. During the period we are in, there is a rise in foreign exchange prices and a decrease in company selling prices. The company sales are in incorrect timing to sell, but it good timing to buy.
Local construction group Mesa Holding is sold to Turkven investment fund. Another big group Gama Holding released a press release that they sold their 20% shares to an individual who represents a number of international investment groups as well as sovereign wealth funds. The signatures will be posted shortly.
Company and real estate prices have fallen, there are no buyers, no investors. There was an important company in Istanbul producing a high-capacity domestic size steam boilers, Children wanted to do other jobs, the company sold. Same performance could not continue. Other boiler companies Demirdöküm was sold, Desa sold. It is always a source of sadness for me selling Desa, which was an important boiler factory of İzmir region and a great accumulation of technological experience.
German Steag bought a very experienced domestic engineering company in the Turkish market. An important Istanbul engineering firm is negotiating majority share sales with Traktabel. Local engineering companies are sold to abroad. Old-established large contractors leave the domestic market, they work abroad, they earn more money in their overseas business. Enka Power, Gama Power, Tekfen Engineering have been strengthened by experienced staff, they became group locomotive companies.
On the other hand, the domestic market has been dominated by medium-sized companies that have close relations with ruling politics. These mid-sized firms do not have the engineering capacity, they depend on the cheap vendors of Far East and to their unreliable power plant designs. Procurement contracts, project execution contracts are very simple. There are almost no guarantees, no sanctions, no penalties. All is going in decisions of Vendors direction.
Some of them pay the North American consulting engineering companies. It is absurd to build a new thermal power plant in Turkey that will use domestic fuel, while buying cheap material and equipment from China with North American engineering company's off-the- shelf contract documents.
People responsible for the project all around the world will most likely write many emails, most will have a conference call over the phone. If there is a disagreement, everyone will take the blame on each other.
The managing job this business is very difficult. However, if you could choose a local consultant company, a local contractor, a domestic assembly team, a local financier, they could handle all these tasks much easier. Everyone could gather around a conference table at any time, in the same city when problems are encountered.
Some investors are planning to buy second hand thermal power plant as their new investments, disassemble there and re-install it here. This decision is more absurd. It does not make sense to buy scrap power plant which ended all its useful life.
In Çayırhan-2, Eskişehir Alpu, Konya Ilgin, Bursa, Trakya local coal firing new thermal power plant project competitive tendering, we understand that the discounted proposal price in domestic coal firing thermal power plant contracts will be the cheapest with less than 6 US cents per kw-hour electricity sales. Winners will surely be trapped by the cheap Chinese thermal power plant contractors. Vendor design is not in the standard international norms. It is impossible to find the correct ESP-FGD designs in the thermal power plants of Far East companies. We read the names of the same companies in each new tender result. The tender is expected to be placed to a nominated group. So the message goes to the markets. Competition conditions for free market were not enough. The market is in this situation and accepted by all parties. In private thermal power stations, we do not operate between 23:00 and 10:00 at night and we do not produce electricity. Since the cost of electricity generation is higher than the market selling price, the generation is stopped due to reason undercode name "commercial victimization". Delaying debt was a special case in the past. Now it's almost like the general situation. Credit card installments were in postponement all the time. How far will this unusual debt deferral go? Company sales have been in the financial banking industry for a long time, now it has started in the pharmaceutical, healthcare, hospital sectors as well. Sale Prices are down, but there is still no appetite for buying at the markets. there are no new Investor arrivals, no fresh money entry. All incoming hot money is coming from unknown resources.
On the other hand, the attractiveness of imported coal-fired power plants is over. The natural gas-fired combined cycle power plants are also not so attractive any more. We can not give names because sales are not over yet, but sales of many plants are on the agenda. The situation of the sun, wind, renewable power plants are better, they can attract more investment. Nowadays we hear those who sell their valuable company, take their money and take it to Miami Florida banks, buy a small 50m2 condo there and set up a new life.
In a narrower scope, we meet with friends who are buying a summer houses at the south coast of Turkey, Datça, Seferihisar, Ayvalık, Antalya with money they get by selling their valuable flats in Istanbul Kadikoy Baghdad Avenue which are in urban gentrification. They sell their homes and leave the big city. This is another procedure of small scale M&A application. Did our age go through the process of reviewing these conditions?
Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.
This article is written for the "EurasiaReview" news web site.
Ankara, 09 March 2017