Retail sector update

July 2014

1

Selected recent credentials

Deloitte is the world’s leading fully-integrated professional services organization, providing financial advisory, consulting, tax, audit and risk advisory services in the consumer business industry.

Deloitte Turkey assumed various advisory roles in recent M&A transactions in the Turkish retail sector. Through an integrated approach, Deloitte Turkey advised its clients during these transactions by providing M&A Advisory, Financial Due Diligence, Commercial Due Diligence, Tax Due Diligence, Tax Structuring and Post-Merger Integration services. Our recent deal track record in the retail sector is presented below:

Financial due diligence services to The Carlyle Group

In its acquisition of Penti

Strategic and commercial duediligence of ORKA Group

for Investcorp

M&A Advisory and full range of Due Diligence services to

In its acquisition of Nine West business in Turkey

Working capital diagnostics of Penti

For The Carlyle Group

Commercial assessment of Park Bravo Group for Landmark

Financial advisor to C&J Clark International Limited

İn its acquisition of EFA Ticaret, the exclusive distributor of Clarks products in Turkey

Financial advisor to Ayakkabı Dünyası

In its sale to Esas Holding

Financial due diligence services to Levant Capital

In its acquisition of Panço

Financial & tax due diligence services to Naspers

Regarding the acquisition of a private shopping website

Vendor due diligence services to Ziylan Group

Lead financial advisor to Silk & Cashmere

In its sale to Eastgate Capital Group

Vendor due diligence services to YKM

2

6,318

7,4848,035 8,288

8,895 9,0349,935

10,92512,035

13,332

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2009A 2010A 2011A 2012A 2013A 2014F 2015F 2016F 2017F 2018F

US$

CAGR (2014-2018): 10.2%

Industry trends

Macroeconomic Performance

Even in a turbulent year due to increased socio political tension and the FED’s revised monetary policy, the Turkish economy retained its momentum and achieved 4% growth. GDP reached US$820 billion in 2013 albeit the Turkish Lira devalued 20% against the US Dollar year-on-year to December 2013.

Turkey’s growth and its continuing long term potential have led to sustained interest from investors, also in 2014, as evidenced by the BIST 100 index remaining above 75.000 points as of May 2014. Similarly, growth remained relatively robust in the first quarter of 2014 at 4.3% while a decrease of 30% was achieved in the current account deficit.

Turkey maintained its investment grade rating from leading credit rating agencies Moody’s and Fitch Ratings.

Industry Commentary

As the Turkish economy grows, the Turkish retail sector has been one of the most appealing sectors for both investors and consumers. Per capita disposable income grew with a CAGR of c. 9% over the past 5 years and reached US$8,895 in 2013; it is expected to exceed US$13,000 in 2018. Despite the significant currency volatility and tightened credit card regulations in 2013, Turkish consumers remained keen on discretionary spending, which drove activity in the sector and continued to encourage a notable number of global brands to enter the market. In this context, the Consumer Confidence Index hit 76.00 as of May 2014.

Macroeconomic Performance

Personal Disposable Income Per Capita

Consumer Confidence vs. TL's Stand

Note: Index values prior to Jan.13 are adjusted to Turkstat's new calculation method which was introduced in Jan.13.Source: Turkstat, CBRT

A: Actual, F:ForecastSource: Turkstat, EIU

A: Actual, F:ForecastSource: Turkstat, EIU

617

732774 786 820 792

845903

9671046

-4.8%

9.2% 8.8%

2.1%

4.0%

2.5%3.5%

5.2% 5.1% 5.2%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

0

200

400

600

800

1,000

1,200

2009A 2010A 2011A 2012A 2013A 2014F 2015F 2016F 2017F 2018F

US$

bill

ion

GDP in Current Prices Real GDP Growth (%)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

-

10

20

30

40

50

60

70

80

90

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Apr

-14

(%)

Consumer Confidence (left) TL Basket of US$ and EUR (right)

3

Retail Sales in Turkey

Credit / Debit Card Transactions

The total size of the retail sector in Turkey is estimated to have reached US$303 billion in 2013 and is expected to grow with a CAGR of c. 7% between 2014 and 2018.

Growth in the retail sector is highly influenced by shopping mall investments and the resulting increase in gross leasable area. In the past five years, the number of shopping malls and total gross leasable area both experienced rapid growth. Increased competition led investors to build larger shopping malls to create differentiation and attract a higher number of consumers.

In line with the increasing number and size of shopping malls, organized retailers’ share of the total retail market has been steadily increasing and has reached 55% in 2013, ending the long-standing dominance of street shops and stalls in food distributorship.

Additionally, the use of credit cards continued to increase at an accelerated pace. In 2013, the total value of credit / debit card transactions grew by 21% year-over-year while CAGR for the last five years is now c.15%.

A: Actual, F:ForecastSource: EIU

108.5 125.7 128.0 129.6 133.3 121.0 126.6 133.5 142.4 147.9

126.0149.3 155.6 160.1 170.0

159.1 174.4191.1

210.7 225.2

-

50

100

150

200

250

300

350

400

2009A 2010A 2011A 2012A 2013A 2014F 2015F 2016F 2017F 2018F

US$

bill

ion

Food Retail Non Food Retail

235

275 284 290 303280*

301325

353373

CAGR (2014-2018): 7.4%

19

23 24

28

34

0

5

10

15

20

25

30

35

40

2009A 2010A 2011A 2012A 2013A

US$

bill

ion

CAGR (2009-2013): 14.6%

Source: The Interbank Card Center

(*) Slight decrease in 2014 is due to a forecasted devaluation of 14% in average TL/US$ y-o-y. Sector is estimated to grow by 10% in 2014 on TL based sales.

4

Category Commentary

Food and BeverageFood and beverage, the largest segment of the total retail market (44%), are expected to grow with a CAGR of 5% in the next five years and reach almost US$150 billion in 2018. We expect to see continued expansion strategies at the discount retailers as well as a consolidation in the market.

Home RetailingThe home retailing market in Turkey, comprised of household furniture and textile products, reached US$51 billion in 2013. Sustained growth is expected in the market considering the many ongoing real estate development projects, nationwide urban transformation projects and increasing urbanization. The size of the home retailing market is forecast to reach US$60 billion in 2018, corresponding to approximately 6% CAGR in the 2014-2018 period.

Apparel and Footwear Retailing One of the most promising segments, which received a high level of investor interest in recent years, apparel and footwear retailing is expected to grow with a CAGR of 8% in the next five years and reach US$37 billion in 2018.

Consumer Electronics and Technological GoodsSmartphone sales have become an important component of the market for consumer electronics and technological goods, which exceeded US$16 billion in 2013, with 5% year-over-year growth. Internet RetailingBoosted by rising internet penetration, an increasing number of Turkish companies are offering online shopping and implementing alternative payment methods. Therefore, the total volume of online spending* through virtual point of sales networks grew annually by 40% on average in the 2009-2013 period and reached US$18 billion. On the other hand, the total size of online retail excluding online legal betting and holiday spending, reached c. US$4 billion in 2013 and corresponded to c. 1.3% of the total retail sales. 

(*) Includes online payments of tax charges but excludes payment on delivery.

Source: Deloitte Research, EIU, GfK, The Interbank Card Center

5

Industry trends: Shopping mall investments in Turkey

One of the key drivers in the retail sector is the number of shopping malls, which has more than quadrupled in the last decade and reached 333 by the end of 2013, spread over 54 cities throughout the country. Owing to Turkish consumers’ increasing purchasing power, improvements in organized retailing and sustained real estate investments by both local and foreign investors, the total amount of shopping mall investments leapt to US$45 billion as of early 2014 (in 2009 the total was US$25 billion), of which one third was realized by foreign investors.

In the same period, gross leasable area (GLA) has exceeded 9 million m2, having risen from 2 million m2 in 2003. GLA per 1,000 people reached 120 m2, but is still below the EU-28 average. However, Turkey is expected to close the gap as it has the second largest investment pipeline in Europe after Russia, corresponding to an additional c. 2.2 million m2 of expected leasable area by the end of 2015.

Istanbul is the center of the Turkish retail market as it is the location for the majority (60%) of shopping malls in Turkey, followed by Ankara and İzmir which together represent another 16%. Istanbul is expected to attract further shopping mall investments in the coming years and continue to dominate, while other major investments are expected to occur in the emerging cities of the Marmara, Black Sea and Mediterranean regions. Ankara and İzmir are likely to become saturated considering the current investment pipeline.

81 93 106133

166

210236

263298 310

333368

409

2 2.2 2.4 2.83.9

4.95.7

6.57.6

8.39.3

10.811.5

0

2

4

6

8

10

12

14

0

50

100

150

200

250

300

350

400

450

mill

ion

sqm

Number of Shopping Malls Gross Leasable Area

1

1018

4

3 51

1027

2

218

7

6

5

23

6

1

131

6

21

344

1

12

2

31

1

4

24

4

4

2

1

1

5 2

2 2

5

1

1

1

1

1

1

Number of Shopping Malls per City

Number of Shopping Malls and Leasable Area

Number of Shopping Malls per City

Source: Turkey Real Estate Reference Book 2013, Shopping Mall Investors’ Association

6

19.3

16.2

5.2

17.3

15.0

22.0

17.5

0.3

3.3

0.1 0.2 0.9 0.7 1.21.6%

20.4%

1.9%1.2%

6.3%

3.2%

6.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013

US$

bill

lion

Total Deal Value Retail & E-Commerce Deal Value Retail / Total

M&A snapshot

M&A Activity in the Turkish Retail Sector

The Turkish retail sector has been a focus for both strategic players and private equity firms in recent years and the eagerness of investors to exploit the opportunities in the market has been steadily increasing. In this respect, 2013 was a highly active year for the sector as 31 transactions (including e-commerce deals) took place with an estimated deal value of US$1.2 billion, the highest deal volume for the sector in the post-crisis period.

Mainly backed by private equity and venture capital firms, internet retailing continued to increase its popularity among investors with 13 transactions out of 31 in 2013.

In the first five months of 2014, 12 deals were materialized, a much higher number than in the same period of 2013.

Source: Deloitte Annual Turkish M&A Review

Source: Thomson Reuters

3,799

2,936

2,073

2,4342,564 2,542

2,393

138 59 41 49 77 104 86

3.6%

2.0%2.0%

2.0%

3.0%

4.1%

3.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2007 2008 2009 2010 2011 2012 2013

US$

bill

lion

Total Deal Value Retail Deal Value Retail / Total

Global M&A Activity

M&A Activity in Turkey

7

Highlighted Transactions

April, 2014 – Naspers, a South Africa based multimedia company acquired the remaining 30% share of Markafoni, a leading e-commerce platform focused on flash sales. Naspers initially bought 70% of Markafoni in 2011 for a consideration of US$200 million.

March, 2014 – Levant Capital, Dubai based private equity firm, acquired a majority stake in Panço Giyim, a prominent kids retailing brand that operates with more than 80 stores nationwide.

December, 2013 – Esas Holding, a Turkish conglomerate focusing on private equity, asset management and real estate investments both in Turkey and abroad acquired Ayakkabı Dünyası, a leading player in Turkish footwear retail sector operating in 15 cities through 39 stores.

November, 2013 – A consortium led by the leading discount retailer BIM Birleşik Mağazalar and two of the most active local private equity firms Gözde Girişim Sermayesi and Turkven acquired 50% of Ziylan, one of the largest

local footwear companies for an estimated consideration of US$225 million. Ziylan operates nearly 300 stores in Turkey through its brands FLO, Polaris, Kinetix and Lumberjack. June, 2013 – Altınyıldız Mensucat, a leading Turkish textile and fashion retailer, bought back the shares of its affiliates Beymen (50%) and Boyner (30%), which it had sold to Citigroup’s asset management platform CVCI in 2007, for US$334 million.

June, December 2013 – Bimeks, a prominent electronics retailer in Turkey acquired 100% of Electroworld, an electronics retailer operating 32 stores in Turkey and the Turkish operations of Darty, a UK based electronics retailing firm operating stores worldwide.

April 2013 – Sabancı Holding, one of the leading Turkish conglomerates, purchased a 12% stake of Carrefour in CarrefourSA for a consideration of US$79 million. Following the transaction, Sabancı Holding became the 51% majority shareholder in CarrefourSA.

8

Transactions in the Turkish retail and e-commerce sectors

Source: Deloitte Annual Turkish M&A Review, Deloitte Research

# Acquirer Origin Target Area of Business Stake Acquired(%)

1 CarrefourSA Turkey Genpa Marketler (15 stores in Antalya) Food Retailing 100%

2 Inventures Turkey Tazemasa.com E Commerce N/D

3 Kaplan Giyim Turkey Herry Hazır Giyim Apparel Retailing 38%

4 Kazançlı İstanbul Marketleri (KIM) Turkey Denmar Marketleri Food Retailing 100%

5 Levant Capital UAE Panço Giyim Apparel Retailing N/D

6 Naspers South Africa Markafoni E Commerce 29%

7 Private Investors Turkey UCZ Magazacilik Food Retailing 60%

8 Private Investors (Aydin Family) Turkey A101 Food Retailing 18%

9 Private Investors (Hasan Aslanoba, Alp Saul, Can Yücaoğlu, Evren Üçok, Gamze Yücaoğlu) Turkey Vivense.com E Commerce N/D

10 Private Investors (Muharrem Ender Karvar, Numan Lir) Turkey Nezih Kitap Specialty Retailing 100%

11 Pupa Bilişim Turkey Elmacı Pazarı Electronics Retailing 100%

12 Verimed A.Ş. Turkey Uyum Gıda Food Retailing 23%

20131 Altınyıldız Mensucat Turkey Beymen Mağazacılık Department Store 50%

2 Altınyıldız Mensucat Turkey Boyner Büyük Mağazacılık A.Ş. Department Store 30%

3 Aslanoba Capital Turkey Modanisa E Commerce N/D

4 Aslanoba Capital Turkey Buldumbuldum.com E Commerce 20%

5 Aslanoba Capital Turkey OnlineMarket.com.tr E Commerce N/D

6 Aslanoba Capital Turkey Ehil.com E Commerce 94%

7 Aslanoba Capital Turkey Hazinem.com E Commerce N/D

8 Aslanoba Capital Turkey Fit&Color E Commerce 25%

9 Aslanoba Capital Turkey Lilakutu.com E Commerce N/D

10 Aslanoba Capital and Private Investors (Fabrice Grinda and Jose Marin) Turkey Vivense.com E Commerce N/D

11 Bancroft Private Equity UK Tatilsepeti.com E Commerce N/D

12 BIM Birleşik Mağazalar; Gözde Girişim; Turkven Turkey Ziylan Group Shoe Retailing 50%

13 Bimeks Turkey Electro World Electronics Retailing 40%

14 Bimeks Bilgi İşlem ve Dış Ticaret A.Ş. Turkey Kesa Turkey Limited (Darty) Electronics Retailing 100%

15 Boyner Büyük Mağazacılık Turkey YKM; YKM Pazarlama Department Store 37%

16 C&J Clark International Limited UK Efa Ticaret ve Pazarlama Ltd. Şti. Shoe Retailing 100%

17 Demsa Group Turkey Emoda Hazir Giyim (Beyazkutu.com) E Commerce 100%

18 Dixons Retail UK Electro World Electronics Retailing 40%

19 Doğan Müzik Kitap Mağazacılık Pazarlama A.Ş. Turkey Elektronik Bilgi İletişim Hizmetleri Reklamcılık ve Ticaret A.Ş. E Commerce 100%

20 EBRD, 212 Capital Partners UK Evim.net E Commerce 38%

21 Esas Holding Turkey Ayakkabı Dünyası Shoe Retailing N/D

22 Hubert Burda Media Germany Lidyana.com E Commerce 22%

23 İsmar Marketler Turkey Eko Hipermarketçilik (Reyon Market) Food Retailing 100%

24 Kim Marketler Turkey Efeler Market; Memar Market Food Retailing 100%

25 Landmark Group UAE Park Bravo Apparel Retailing 90%

26 Magrabi Optical Company Ltd. Saudi Arabia Şişli Optik Eyewear Retailing 100%

27 Metro Ticari Turkey Herry Hazır Giyim Apparel Retailing 32%

28 Sabancı Holding Turkey CarrefourSA Food Retailing 12%

29 Şok Ucuzluk Marketleri Turkey Onur Ekspres Mağazacılık Food Retailing 100%

30 Templeton Asset Management USA Şok Marketler Food Retailing 10%

31 Yıldız Holding A.Ş. Turkey Diasa Dia Sabancı Süpermarketleri Ticaret A.Ş. Food Retailing 100%

Jan-May 2014

9

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. Information and data, whether actual or forecast, contained in this publication is derived from publicly available sources and is not verified by Deloitte Network. Deloitte Network can not be held responsible for the accuracy and reliability of the information provided in this publication.

10

For more information aboutthis publication contact:

Başak VardarIntegrated M&A Services LeaderPartnerbvardar@deloitte.com+ 90 (212) 366 63 71

Özgür YaltaConsumer Business Industry LeaderPartner oyalta@deloitte.com+ 90 (212) 366 60 77

DRT Kurumsal Finans Danışmanlık Hizmetleri A.Ş.

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© 2014. For information, contact Deloitte Turkey, Member of Deloitte Touche Tohmatsu Limited.

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