Nicholas Watson in Prague -
Dutch financial services group ING Group has snagged one of the last opportunities to buy up a slice of Turkey's fast growing banking market when it agreed to pay a not unreasonable sum of $2.673 for Oyak Bank. Attention now turns to the remaining listed acquisition targets: Tekstilbank, Vakifbank and Halkbank.
"The acquisition is in line with our strategy of supporting the strong organic growth of the group with suitable add-on acquisitions," ING's chief executive, Michel Tilmant, said in a statement.
This particular add-on is a mid-sized bank with an estimated 3% share of Turkey's burgeoning banking market, with $8.5bn in assets and $5.9bn in deposits
Now fully liberalised, the Turkish banking market and financial sector as a whole have undergone dramatic changes over the last several years since the financial crisis of 2001, fostered by mergers and acquisitions, and the arrival of foreign players. The financial services market is growing at 20-30% per year, driven by booming private consumption and investment. According to the IMF, this growth is being fuelled by declining real interest rates, surging capital inflows, rapid credit expansion and rising productivity. Meanwhile inflation has dropped dramatically over the past five years.
"This [deal with ING] would take our FDI expectation for 2007 to some $22bn, financing more than 65% of the expected current account deficit for 2007," says Istanbul-based IS Investment.
While certainly a coup for ING, the acquisition comes at a price. ING says the deal works out at a price/book multiple of 3.26 times and a price/earnings multiple of 26.6 times 2006 earnings.
As such, the transaction price implies a premium of 32% over the multiples of the banking sector. Turkish banks trade at an average price/book multiple of 1.9 times and a P/E of 10 times, notes Oyak Securities, which is owned 100% by Oyak Group but not included in today's deal.
Even so, Raymond James says the transaction multiple is in line with the earlier multiples seen for M&A in 2006. And Eli Leenaars, a board memember of ING, stresses that the price being paid is for 100% of the bank, not a minority stake like some other recent acqusitions.
"The best way to describe the price is that its fair and well in line with what the market is showing. We are buying a 100% stake, not a minority stake, and so this is a very fair price," Leenaars says.
Who's next? Analysts say the remaining listed M&A targets are Tekstilbank, Vakifbank and Halkbank. And valuations are only likely to rise.
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