8 February 2010
The future looks rosy for the Turkish market, with recovery well underway. James Swift reports that this has not gone unnoticed by the big international players
Turkey took a battering in the downturn. The country’s GDP dropped by around 6 per cent and unemployment rose, at its peak in April 2009 to 15.5 per cent. Law firms had a nightmarish couple of years too. In 2007 the volume of M&A transactions was worth $20.6bn (£12.83bn), whereas in 2009 it was around $6bn.
Since the end of 2009, though, things have looked decidedly more positive for the world’s fifteenth-largest economy (based on GDP-purchasing power parity figures). On 8 January this year Moody’s upgraded the country’s international credit rating from Ba3 to Ba2 - ie from stable to positive.
International law firms, too, are again beginning to pay serious heed to the republic and its law firms.
“In my view Turkey’s already recovered and our problems have been left behind us,” says Ahmed Pekin, senior partner at Pekin & Pekin in Istanbul. “Turkey’s been upgraded by Moody’s despite the fact that other countries are being downgraded.”
The country’s solid financial institutions are largely to thank for the upgrade.
After Turkey’s financial crash in 2001 the government introduced legislation and reforms that have helped banks absorb shocks in the markets, while an oversubscribed e2bn (£1.74bn) eurobond issued this year evidenced the confidence foreign investors have in Turkey.
“It’s going to be a very interesting year for Turkey,” says Tolga Ismen, managing partner at leading M&A Turkish firm Ismen. “There’s a lot of interest from international firms; a lot of senior partners are spending a lot of time here talking to clients and lawyers. My colleague says that, if he put a penny aside every time he heard about a European firm wanting to come to Turkey, he’d have a house by now.”
The top global firms trying to get toeholds in the country is well in evidence. Linklaters saw fit to establish a dedicated Turkey desk in 2008, while in January 2009 Clifford Chance showed its hand, hiring an Istanbul lawyer from Pekin.
But alliances are just as beneficial for Turkey’s firms as they the internationals.
“Alliances are important not just for the international firms, but also for lawyers in Turkey,” explains White & Case partner Asli Basgoz, who has been in Istanbul since the office’s inception in 1985. “A firm can’t grow by focusing just on Turkey: this has been true for the past 20 years, but it’s now more true than ever, and it’s a particularly good opportunity for younger firms.”
The pipeline of work is certainly encouraging and successful tie-ups could lead to a banner year for firms in the Turkish market. M&A deals and IPOs are coming back; the government, having privatised its commercial enterprises and financial institutions, is now doing the same in infrastructure and utilities; and energy is set to be key as the country races to provide for its growing economy.
“Turkey’s facing an energy crisis,” says Umit Hergüner, founding partner of Hergüner Bilgen Özeke. “If not for the recession we’d have had it already, but because production backed up a little we may have gained a year or two; but by the end of 2012 the problem will have come back. This will provide a lot of work, particularly in renewable energy.”
In spite of all this the market is still probably too small for the largest firms to establish physical presences in the country, preferring instead to focus on building relationships with local players.
“The magic circle firms aren’t interested in setting up here because they’re all working with us already,” says Pekin. “There are rumours that some other smaller firms are looking to open in Istanbul, but I don’t think they’ll be successful. The problem is that, in the legal sector, the amount of work you get isn’t dependent on your trademark: names do mean something, but not much. The main resource is the human resource. If you don’t have competent lawyers then you can be whoever and it won’t make a difference.”
Comparisons to Italy are inevitable, in that in Turkey rainmaker status and personal relationships are a significant determinant for who gets the deals; and international firms admit to following Turkish partners from firm to firm, rather than showing loyalty to a particular brand. And this is not where the similarity to Italy ends.
“Turkey has a young, dynamic market,” says James Douglass, a partner on Linklaters’ Turkey desk. “There are a lot of entrepreneurial partners in the Turkish firms and you quite often see them opening spin-offs, a lot like in the Italian market 10 years ago.”
The tumultuous nature of the market means opinion is divided as to whether and in what numbers international firms will set up in Turkey, but for firms such as White & Case and Gide Loyrette Nouel, which have committed to physical presences in the country, perseverance is key.
“The market is peculiar because of the number of ups and downs it’s had in the past decade - it’s not for the faint-hearted,” says Gide’s correspondent lawyer in Turkey Güniz Gökçe. “For international firms Turkey can’t be a short-term or medium-term investment - you need to be here for the long term, you need to be able to weather the storms.”