M&A opportunities in Turkey’s halal food sector

Photo: ISTANBUL, NOV 21, 2013, Bazaar in Istanbul /  Stefan Holm / Shutterstock.com

Turkey’s halal food market was estimated at $30 billion in 2014, double the value from 2013. With $293 million in M&A activity in Turkey’s halal food sector between 2012 and 2015, what are the opportunities for international investors to participate in this high growth market?

GLOBAL FOOD M&A ACTIVITY

The volume of global food sector M&A deal activity in 2014 increased by 62 percent from the prior year, with aggregate value from over 500 deals exceeding $100 billion, according to the non-profit food information organization The Food Institute.  This volume includes strategic acquisitions made by players across the global food value chain as well as by private equity firms.

There is a well-established global food investment industry, where there are 240 investment funds operating in the Food & Agriculture sector holding over $45 billion in funds under management. There are also 40 private equity funds focused on Food & Agriculture that are valued at almost $8 billion, according to market research conducted by Raconteur. This sum excludes farmland investments.

GLOBAL HALAL FOOD M&A ACTIVITY

Global halal food activity in 2014 was low relative to the global level, with deal value between 2012 and 2015 representing less than 2 percent of aggregate global sector activity.

Despite a 1.7 billion global Muslim population accounting for 17 percent of global food and beverage spend in 2014, only 70 deals, out of the more than 500 globally, were identified in the halal food sector. These were worth an aggregate value of $2.1 billion.

There is significant fragmentation across the halal food supply chain and there remains substantial untapped potential for corporate and private equity investors in this sector.

HALAL FOOD M&A ACTIVITY IN TURKEY

There were 44 Food & Agriculture-related M&A deals in Turkey in 2014, totalling $1.5 billion in value, according to Thomson Reuters and DinarStandard’s Islamic Growth Markets Investment Outlook 2015 report.  Between 2012 and 2015 there were 13 halal food deals valued at $295 million in Turkey.

For our considerations, halal food deals are those that have been strictly defined as meat-related deals, where the target company was directly involved in segments of the supply chain and where certification is required. There must also be a specific change of ownership as a result of the acquisition.

Based on these criteria, the majority of halal food deals involved acquiring manufacturers involved in the value-added processing of meat. These deals accounted for 65 percent of total deal value in Turkey between 2012 and 2015.

These deals in the Turkish halal food sector accounted for 13 percent of global activity by value.

Although there has been substantial private equity investment in Turkey, there is limited private equity participation in the halal food sector.

Private equity firms have invested heavily in Turkey in the past ten years, with a significant focus historically on retail and logistics, albeit with declining activity recently.  

Some of the largest deals include BC Partners Acquisition of Migros, the largest supermarket chain valued at $3.2 billion in 2008 and KKR’s acquisition of shipping company U.N. Ro-Ro Isletmeleri in 2007 for over $1 billion.

However, the level of activity has been declining recently, with aggregate deal values down from $503 million in 2013 to $343 million in 2014.

CORPORATE-LED

12 of the 13 halal food M&A transactions in Turkey were led by corporates, with the largest identified deal being Namet Gida’s acquisition of Maret in 2014.

Namet Gida is a leading producer of Turkish meat and food products and ranks 116th among the top 500 Turkish companies with 2014 revenue of $366 million.

Maret is one of the leading manufacturers of fresh cut meat and packaged processed meat with 36,000 tons of annual meat processing capacity. The company was a subsidiary of Tat Gida, one of the subsidiaries of Turkey’s top industrial conglomerate Koc Holding, which decided to exit the meat and meat products business. The deal will enable Maret to build scale in its operations as well as batter target customers and grow in export markets.

Photo: Istanbul, Turkey, April 28, 2011: A cafe on the main city street Istiklal / Bellena / Shutterstock.com

OPPORTUNITIES IN TURKEY’S HALAL FOOD MARKET

Turkey’s halal food market is an estimated $30 billion. The country is the second largest F&B market by Muslim spend, after Indonesia.

Turkish spend on  F&B was estimated to be $112 billion in 2014 and growth is estimated at a CAGR of 2 percent between 2014 and 2020, according to the State of the Global Islamic Economy 2015/16 report. The country is a viable market to expand with F&B export volume of $16.4 billion by 2014, according to the Turkish Statistical Institute Turkstat.

As a sub-set of the country’s total expenditure on food, the Turkish halal-certified  F&B market was estimated to be worth $15 billion in 2014 and is expected to double to reach $30 billion in 2015, according to Yunus Ete, organizer of Halal Expo event in Turkey, speaking to Turkish newspaper Sabah.

Turkey is one of the leading OIC countries for food and agriculture investment, with opportunities across the value chain to build vertically integrated, global companies.

The country was ranked as number five in Thomson Reuters and DinarStandard’s Islamic Growth Markets Food & Agriculture Investment Index with Indonesia, Malaysia and Saudi Arabia as the top three markets. Turkey is a key market across all value chain segments, including the supply of animal and vegetable products, and food manufacturing and distribution.

There are opportunities to invest and build leading companies across the F&B value chain for experienced investors who can leverage food sector expertise and help create truly global halal food brands based in Turkey serving the global Muslim market.

Turkey is ideally positioned to be a leading agricultural producer, with the government undertaking steps to encourage more farmland development. It has a favorable climate, enabling crops to yield more than twice a year, and an ideal geographic location connecting three different continents.

Opportunities for M&A are ripe considering there is significant fragmentation in the food sector; the country’s food industry is large and varied, with sizeable food suppliers focussed on the domestic market, such as Namet Gida ($366 million revenue in 2014) and Banvit Meat and Poultry ($600 million revenue in 2014), as well as more than 70,000 manufacturing factories, according to data from the Agriculture Ministry.

Further, with more than 637,000 food retailers and restaurants, there is significant growth potential in organized retail, which currently represents 50 percent of the retail industry and has the potential to reach 80 percent, estimates the Islamic Growth Markets Investment Outlook 2015.

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