The Buzz in Turkey: Interview with Elvan Aziz of Paksoy

The Buzz in Turkey: Interview with Elvan Aziz of Paksoy

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Turkey's toughest challenges are inflation, exchange rates, and the devaluation of the Turkish Lira, according to Paksoy Partner Elvan Aziz.

"This has affected major aspects of our political life and economy," Aziz notes. "We always had to deal with these issues, but this year they've reached a new level. Every morning we wake up curious about how the situation might have changed. The exchange rate fluctuations are evident even throughout the same day, affecting not only law firms' business, but the whole Turkish economy."

The upcoming elections are a major factor in Turkish political life, according to Aziz. "In Turkey, general elections will be held in 2023 and politicians are already preparing for them," she adds. "As in other parts of the world, elections create a certain political environment, having an effect on the whole country. Politicians are more actively undertaking economic projects, creating what can be referred to as a 'political economy'. At the same time, foreign investors usually refrain from their investment activities until the election results are public," she notes. According to her, certain events and transactions in 2022 might be postponed until the election results are finalized.

"In terms of legislative updates, we have not witnessed any major changes affecting the M&A market," Aziz notes. "Also, no additional legislative changes have been adopted recently to impose any further COVID-19-related restrictions that would adversely affect social and economical life."

According to Aziz, this year, foreign exchange fluctuations have been a driving force affecting the transactions. "For M&A deals, if the purchase price is determined in foreign currency, buyers are not willing to participate as the assets are becoming too expensive, especially if the target’s revenues are mainly in Turkish Lira from the local market. On the other hand, if the purchase price is determined in Turkish Lira at the outset, sellers are disadvantaged and they want to renegotiate the price." According to her, it eventually hinders the number of transactions, and "some of these transactions are also postponed until next year."

At the same time, this year saw an increased number of VC transactions in Turkey, Aziz says. "Turkey is still attractive in M&A due to the lower production costs in the country, especially for buyers that could create post-acquisition synergies within the region," she concludes.