TURKEY: Comparative M&A Guide

In the dynamic landscape of global business, mergers and acquisitions (M&A) play a pivotal role in shaping the economic trajectory of nations. This comprehensive guide delves into the intricacies of Turkey’s M&A landscape, providing a comparative analysis that illuminates the legal dimensions of transactions within the country.

Deal Structure

1- How are private M&A transactions typically structured in your jurisdiction?  

Private M&A transactions are typically structured as share sales in Turkey. An alternative structure used is an asset sale. According to Turkish law, instead of multiple asset sale transactions, one may also acquire a commercial enterprise as a whole through a simplified procedure called a ‘transfer of commercial enterprise’.

2- What are the key differences and potential advantages and disadvantages of the various structures?

Share sales are usually more advantageous for the following reasons:

• They are more beneficial from a tax perspective;
• The procedures required for share sales are simpler than those for asset sales or the transfer of a commercial enterprise; and
• Share sales offer more confidentiality compared to the transfer of a commercial enterprise, which must be: notified to the target’s creditors; registered with the Commercial Registry; and announced in the Commercial Registry Gazette.

On the other hand, the advantage of an asset sale from the buyer’s side is that it can select only those assets of the target that it wishes to acquire.

There is also a key difference regarding who receives the purchase price. In the case of a share sale, the purchase price is paid directly to the seller; whereas in the case of an asset sale or transfer of the commercial enterprise, the purchase price is paid to the target.

3- What factors commonly influence the choice of transaction structure?

Undoubtedly, tax considerations play an important role in the choice of transaction structure. However, the buyer’s desire to acquire only certain parts of the target may lead the parties to opt for an asset sale.

4- What specific considerations should be borne in mind where the sale is structured as an auction process?

Sales may be structured as an auction process when there are several potential buyers. Although there is no legal rule regarding how the auction process is structured, it usually happens as follows: the potential bidders receive an information memorandum or a vendor due diligence report prepared by the seller’s advisers about the target, together with a bid process letter. The bid process letter usually sets out the timetable for the auction and provides instructions and negotiation rules for bidders that decide to submit an offer. After the first round, the top two or three bidders are given access to a virtual data room containing further information about the target and a share purchase agreement template. Bidders are invited to submit their offers with their comments on the share purchase agreement template. It usually takes two to three rounds before the seller requests binding offers from the bidders. The seller then selects the best offer and signs an exclusive letter of intent or proceeds directly to negotiation of the share purchase agreement.

Bidders must bear in mind that the seller usually does not decide solely based on the monetary offer but also considers the comments on the share purchase agreement. Thus, the advantage of an auction process for sellers is that they can obtain a better sale price and better contract terms.

Initial steps

5- What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?

The initial phase usually begins with the signing of a letter of intent – also known as a memorandum of understanding or term sheet – between the potential seller and the potential buyer. The letter of intent is expected to be a non-binding document; but the parties often decide to make certain provisions binding, such as exclusivity, confidentiality or applicable law provisions. The purpose of a letter of intent is, in most cases:

• to set out the intentions of both parties regarding the proposed transaction; and 
• to provide a framework for the financial terms, including the purchase price or the method to be used to determine the purchase price. 

It can be as detailed and formal or informal as the parties wish. There is no legal requirement in relation to the form of a letter of intent. However, for evidentiary reasons, it is advisable to have written and signed documents.

After signing a letter of intent, the buyer will usually want to start due diligence. At this stage, a more detailed confidentiality agreement and data room rule documents are usually signed.

6- Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?

In the initial preparatory stage of an M&A transaction, lawyers, tax advisers and investment bankers are typically involved.

7- Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?

Rules against financial assistance are applicable to the target. The seller may bear the costs of the advisers.

Due diligence

8- What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?

The types of due diligence vary depending on: 

• the sector of the target; and 
• the nature of the transaction. 

In Turkey, the types of due diligence normally conducted in private M&A transactions are legal, tax and financial due diligence.

Due diligence is usually conducted through virtual data rooms. If required by the target’s industry or business, on-site technical due diligence may also be conducted.

Legal due diligence usually covers the following items:

Company documents: the articles of association, extracts from the trade register, the share ledger, board resolutions, and the minutes of the general assembly.

Contracts: contracts with key customers, distribution agreements, and supply agreements.

Financial documents: loan agreements, security agreements such as mortgages or pledges, and relevant documents.

Real estate: title deeds, encumbrance lists, and construction and use permits.

Employment: the total number of employees, contracts of employment; and evidence of payment of social security contributions.

Licences and permits: These include copies of the licences and permits required for the relevant sector and applications, including environmental permits and so on.

Related-party transactions: Relevant information includes details of commercial transactions between the target and its shareholders or board members.

Intellectual property: Records of registered intellectual property.

Litigation: Information on pending or threatened litigation.

9- What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?

In our experience, the following considerations can help to ensure smooth and efficient due diligence:

• The scope of due diligence depends on the industry and activities of the target. The list of questions for due diligence must take these factors into account to ensure that there are no irrelevant questions for the target. This will help to save time and create a more professional working environment for the advisers of both parties.
• The deliverables that the seller expects from its advisers should be defined in advance of the due diligence. Not every seller wants a very detailed 200-page due diligence report. If you focus on the key points that could have an important impact on the value, purchase price, liability or future activities of the target, the whole process will be more efficient.
• Due diligence is limited to the information disclosed by the seller, excluding public information. The buyer’s advisers can uncover missing information by asking the right questions, but there is no guarantee that the buyer will know everything until it has control over the target. It is therefore important to include appropriate indemnification clauses in the transaction documents, especially for areas that appear suspicious or risky.

10- What kind of scope in relation to environmental, social and governance matters is typical in private M&A transactions?

Environmental, social and governance (ESG) aspects have always been included in due diligence but have usually been limited to compliance with relevant legislation. As the importance attached to sustainability has increased globally, so too has awareness of ESG in Turkey, especially for the reputation of companies, which can impact on share price. For example, the project presentation file required under the Regulation on the Environmental Impact Assessment includes a section on the environmental and social action plan, as well as a sustainability plan.

The scope in relation to these matters also depends on the industry and operations of the target. For instance, if the target has factories or power plants, the scope must include questions such as whether the target: 

• has all the necessary permits to operate such factories or power plants and is in compliance with environmental regulations; 
• has ever been subject to a complaint or penalty due to environmental matters;
• has corporate policies on the protection of the environment and the reduction of pollution and waste; 
• publishes sustainability reports; and 
• more generally, acts responsibly.

The scope in relation to social and governance matters may include, among other things:

• compliance with good labour practices (ie, working hours, health and safety);
• compliance with laws on data protection and privacy of employees; 
• relationships with the community; 
• diversity both among employees and in the composition of the board of directors; and
• corporate transparency.

Corporate and regulatory approvals

11- What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?

Regulatory approvals: As a general rule, the shares of a joint stock company can be freely transferred without any regulatory approval. However, there are exceptions. Share transfers in certain regulated industries – such as banking, insurance, telecommunications and electricity generation – may be subject to the approval of the relevant regulatory authority, depending on the percentage of shares to be transferred.

In addition, the approval of the Competition Board must be obtained before the closing of a transaction that exceeds certain thresholds.

Corporate approvals: According to the Commercial Code, registered shares that have not been fully paid can be transferred only with the approval of the company. Such approval should not be withheld unless:

• there is doubt regarding the solvency of the buyer; and 
• the buyer fails to provide the guarantee requested by the company.

The articles of association of the target may restrict share transfers during a period (known as a ‘lock-up period’) to preserve:

• the composition of its shareholding; 
• its scope of activity; or 
• its economic independence. 

If these restrictions apply, the board of directors can refuse to approve the share transfer.

The common practice in Turkey is always to obtain the approval of the board of directors of the target for the contemplated share transfer and make it one of the closing conditions.

12- Do any foreign ownership restrictions apply in your jurisdiction?

Foreign investors can freely and directly invest in Turkey and are subject to the same treatment as local investors. They are only required to inform the competent authority about the investments they make, including share transactions, in accordance with the Law on Foreign Direct Investment.

However, there are restrictions on the percentage of shares that foreign investors can hold in certain sectors, such as broadcasting and civil aviation.

13- What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?

For regulatory approvals, the due diligence should go beyond inspecting copies of the consents and approvals and investigate whether the target: 

• has complied with the requirements of those consents and approvals; and
• has ever received warnings from the relevant authorities that could lead to their revocation.

It is also important to check:

• the expiry date of the consents; and 
• whether applications for the renewal of the consents have been properly made.

In the case of corporate consents, to ensure that they are legally valid and cannot be challenged, the buyer should pay particular attention to whether:

• the consents have been issued by the authorised bodies or persons of the target; and 
• the procedures for the approval process have been properly followed.

Transaction documents

14- What documents are typically prepared for a private M&A transaction and who generally drafts them?

The following documents are typically prepared for a private M&A transaction:

• non-disclosure agreement;

• letter of intent;

• share purchase agreement or asset sale agreement;

• escrow agreement; and

• shareholders’ agreement if the buyer does not acquire all shares of the target.

There is no rule as to which party prepares these documents; but usually, they are prepared by the buyer’s consultants, with the exception of the non-disclosure agreement and the disclosure letter.

15- What key matters are covered in these documents?

Non-disclosure agreement: The purpose of the non-disclosure agreement is to protect the proprietary information of the target that is disclosed to the buyer and its advisers.

Letter of intent: The letter of intent sets out the framework for the final transaction documents and clarifies the intentions of the parties. The parties may also use the letter of intent to set an exclusivity period.

Share purchase agreement or asset sale agreement: This is the main agreement that governs the transaction and the rights and obligations of the parties. It usually includes key matters such as: 

• representations and warranties; consideration; the obligations of the parties between signing and closing; closing steps and obligations; andan indemnification clause.

Escrow agreement: This type of agreement is signed when a portion of the purchase price is paid to a third party, which holds it as a guarantee of the seller’s obligations to pay any potential indemnification claims or as part of an earnout mechanism.

Shareholders’ agreement: If the seller remains as a shareholder in the target, a shareholders’ agreement is signed to outline the rights and obligations of the shareholders in relation to the target and their shares.

16- On what basis is it decided which law will govern the relevant transaction documents? 

Where the target is based in Turkey and subject to Turkish laws, the applicable law is usually Turkish law for the sale of shares or assets in a Turkish company. Even if the parties choose a foreign law in the contract, mandatory provisions of Turkish law will supersede the chosen law.

Representations and warranties

17- What representations and warranties are typically included in the transaction documents and what do they typically cover? 

Representations and warranties typically cover:

• the legal capacity and authority of the parties;
• non-violation of the target’s corporate documents, licences or material contracts by the transaction;
• the share capital and shares of the target;
• title to the shares and the seller’s power to transfer them;
• the accounts of the target;
• taxes;
• material contracts;
• assets;
• intellectual property;
• litigation involving the target;
• compliance with employment law;
• compliance with regulatory approvals; and
• compliance with environmental laws;

18- What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?

A specific indemnity is usually sought when both parties agree on the existence of a certain risk and the buyer does not want to assume the liability. With a specific indemnity clause, the seller agrees to compensate the buyer for losses if the risk materialises, without limiting the seller’s liability to a certain amount.

19- What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?

Under Turkish law, the primary remedy for breach of obligation is specific performance, with compensation being a secondary remedy. However, in mergers and acquisitions, specific performance may present difficulties. Therefore, the parties usually agree on indemnification clauses for breaches of representations.

To claim indemnification, the following conditions must be met:

• breach of a contractual obligation;
• the existence of damage;
• causality between the breach and the damage; and
• fault on the part of the debtor.

The statutory period for claiming damages under the Code of Obligations is the earlier of:

• two years from the date on which the injured party became aware of the damage and the person responsible; or 
• 10 years from the event in question.

In practice, the parties often agree that the provisions of their agreement supersede the provisions of the Code of Obligations and set different time limits. For breaches of representations and warranties related to tax matters, the timeframe is usually six years, considering the statutory limitation periods for tax penalties. For other representations and warranties, the timeframe is typically limited to one or two years from the date of closing.

20- What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

Sellers usually exclude liability for matters communicated to the buyer in a disclosure letter.

Standard limitations – such as monetary limits of liability, de minimis and basket thresholds – are generally applied.

21- What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Insurance is a regulated industry in Turkey and specific insurance policies for warranty and indemnity are often not recognised. However, some companies offer this type of insurance as part of general insurance policies. Warranty and indemnity insurance is not yet widespread in Turkey and insurance companies are often reluctant to offer it due to insufficient legislation.

22- What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

The usual approach is to use an escrow mechanism where part of the purchase price is paid to an escrow agent. The escrow agent holds the funds until: 

• the seller fulfils its indemnification obligations; or 
• an indemnification claim is concluded.

23- Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?

Buyers usually include restrictive covenants in the transaction documents, such as non-compete and confidentiality obligations. Non-compete covenants must be limited in time, activity, industry and geographical scope, taking into account:

• the buyer’s protection needs; and 
• the seller’s future plans. 

As a general rule, the restriction of competition must be reasonable and limited to what is necessary for its purpose.

According to the case law of the Court of Cassation, non-compete clauses must not restrict economic freedom and must not violate good-faith and ethical rules. Non-compete clauses are usually limited to two to three years.

24- Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Yes, it is common to include conditions to closing when there is a gap between signing and closing. These conditions may include:

• no judgments, injunctions or laws preventing the closing;
• the correctness of all warranties at the time of closing;
• no MAC; and
• the approval of the Competition Authority, if applicable.

In addition to the closing conditions, there are usually obligations relating to the period between signing and closing.

25- What other conditions precedent are typically included in the transaction documents?

Other conditions precedent that are typically included, depending on the specific requirements of the transactions, may include:

• the delivery of signed consent letters from the counterparties of material contracts of the target agreeing not to terminate the contract due to the change of control in the company;
• the delivery of evidence that the target has obtained or applied for missing permits and licences; and
• the signing of the escrow agreement.

Financing

26- What types of consideration are typically offered in private M&A transactions in your jurisdiction?   

In Turkey, most acquisition transactions involve a cash payment; whereas mergers often involve a stock exchange transaction.

27- What are the key differences and potential advantages and disadvantages of the various types of consideration?

Cash payment is liquid, instant and less volatile than share prices. However, cash payments are significantly affected by drastic fluctuations in foreign exchange rates.

The difficulties of payment with shares lie in determining the value of shares in private companies and the liquidity of the shares.

28- What factors commonly influence the choice of consideration?

The factors mentioned in question 27 influence the choice of consideration.

29- How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?

Since companies are living organisms, the target must continue its operations between signing and closing. Changes may occur in the target’s financial condition during this period, which can affect the final purchase price. For this reason, a closing mechanism is usually included in the transaction agreements. Both locked-box and completion account structures are commonly used in M&A deals in Turkey.

In a locked-box structure, the final purchase price is agreed based on the target’s financial statements as of a specific date, with a no-leakage clause to effectively ‘lock the box’. If the seller breaches the no-leakage clause, it must compensate the buyer for the leaked value.

In a completion account structure, the purchase price is adjusted based on the difference between the financials at a defined date (accounts date financials) and the completion accounts financials. 

Both structures have their advantages and disadvantages, and the choice depends on the specific circumstances of the transaction.

30- Is the price typically paid in full on closing or are deferred payment arrangements common?

The payment terms vary depending on the circumstances of each transaction, such as:

• the buyer’s cash flow; or
• its intention to keep the seller involved in the target’s business.

In scenarios where the seller remains involved in the target, a deferred earnout payment based on the target’s performance may be beneficial to both parties. From the buyer’s perspective, this motivates the sellers to efficiently run the target and achieve its goals; while for the seller, it offers the opportunity to maximise the earnout. The safest way to secure the deferred payment is to place the funds in an escrow account.

However, if the seller is leaving the target and will no longer be involved in its business, deferred payment is not beneficial. Private equity firms, in particular, are unlikely to agree to a deferred payment for an exit.

31- Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (eg, post-completion veto rights)?

In the case of an earnout payment, the agreement must clearly state how the target will be managed post-closing. Since the earnout payment is tied to the target’s performance, sellers usually want the authority to manage the company and make decisions that may impact on its performance.

In the case of a deferred payment, sellers typically prefer an escrow mechanism to guarantee that the payment will be made when due.

32- Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?

According to the Commercial Code, transactions where a company grants advances, loans or guarantees to another person for the purpose of acquiring its shares are void. However, this rule does not apply to:

• transactions carried out by credit and financial institutions in the course of their business; or
• transactions involving the granting of advances, loans and guarantees to employees of the company or its subsidiaries for the purpose of enabling them to acquire the company’s shares.

33- What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?

Participants in an M&A transaction should consider that:

• the valuation of the target plays an important role in determining the purchase price; and
• if the purchase price is determined by a formula in the agreement, the formula must be very clear to avoid potential disputes.

Deal process

34- How does the deal process typically unfold? What are the key milestones?

The typical deal process unfolds as follows:

• signing of a letter of intent and a non-disclosure agreement;
• preparation of the data room based on the buyer’s advisers’ checklist;
• due diligence;
• negotiation of transaction documents;
• signing of the share purchase agreement or asset sale agreement;
• fulfilment of conditions precedent, including application to the Competition Authority; and
• closing.

35- What documents are typically signed on closing? How does this typically take place?

On closing, the parties usually meet at the office of one of the parties’ lawyers or at the head office of the target. The buyer instructs its bank to transfer the purchase price to the seller’s account and provides proof of the transfer (Swift Message). Each party submits the necessary documents as required by the transaction agreements. The seller and buyer endorse and sign the share certificates representing the acquired shares. If necessary, the procedures related to the general assembly meeting of the target are followed.

The following documents are typically signed on closing:

• share certificates representing the acquired shares;
• the share ledger to record the transfer of shares and the new shareholders;
• documents to be signed by the newly appointed directors;
• letters of resignation from the directors who will be leaving;
• new employment contracts with management, if required; and
• documents required for the general assembly meeting of the target (eg, to approve the amendment of the articles of association and the appointment of new directors).

36- In case of a share deal, what is the process for transferring title to shares to the buyer? 

In a share deal, the share certificates representing the shares being transferred to the buyer are endorsed and signed by both the seller and the buyer. The transfer of shares is also recorded in the share ledger of the target.

37- Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?

Sellers can be held liable and must indemnify the buyer for any losses incurred post-closing if any of the representations and warranties made by the seller in the agreement were untrue or misleading up to the closing. Generally, sellers do not disclaim any other representations or warranties made by themselves, their officers, directors, employees, agents, advisers or representatives in relation to the agreement or the transactions.

Advisers cannot be held liable under normal circumstances.

38- What are the typical post-closing steps that need to be taken into consideration?

If the buyer is a foreigner, it must inform the Foreign Investment Directorate of the share transaction in accordance with the Law on Foreign Direct Investment.

Competition

39- What competition rules apply to private M&A transactions in your jurisdiction?

In private M&A transactions that result in a change of control and meet the following thresholds, an application must be filed with the Competition Authority before closing:

• The aggregate turnover of the parties in Turkey exceeds TRY 750 million, and the turnover of at least two parties in Turkey separately exceeds TRY 250 million; or
• The turnover of the targeted assets or business, or the turnover of at least one of the parties, exceeds TRY 250 million and at least one of the other parties has a global turnover exceeding TRY 3 billion.

For transactions involving the acquisition of technology companies operating in the Turkish market, or with R&D activities or providing services to users in Turkey, the TRY 250 million thresholds do not apply.

40- What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?

Participants in private M&A transactions should be aware that failure to comply with competition law and proceeding with closing without the approval of the Competition Authority may result in heavy penalties.

Employment 

41- What employee consultation rules apply to private M&A transactions in your jurisdiction?

In the case of a share sale, since the employer remains the same legal entity (the target), there is no legal obligation to consult the employees. However, if there are changes in the management of the target as a result of the share sale and the employees’ supervisors change, the employees must be informed after the closing.

In the case of a transfer of the commercial enterprise, there is no legal obligation for consultation with the employees, similar to a share sale.

42- What transfer rules apply to private M&A transactions in your jurisdiction?

In the case of a share sale, since the employer remains the same legal entity (the target), the employment contracts remain the same and are not transferred.

In the case of a transfer of the commercial enterprise, the employment contracts existing at the time of the transfer automatically pass to the new owner along with all rights and obligations.

43- What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?

The change of ownership of the target or the transfer of the commercial enterprise itself is not a valid ground for the termination of employment contracts.

In the case of the transfer of the commercial enterprise, the seller and the buyer are jointly liable for debts incurred before the transfer, which must be paid on the transfer date. However, the seller’s liability for these obligations is limited to two years from the date of the transfer.

44- What is the impact of a private M&A transaction on any pension scheme of the seller?

In the case of a share sale, since the employer remains the same legal entity (the target), the employment contracts and the pension scheme remain the same.

In the case of a transfer of the commercial enterprise, any pension scheme existing at the time of the transfer automatically passes to the new owner along with the employment contracts.

45- What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?

During due diligence, it is important to establish whether any employees were misclassified by the target and whether this poses a risk to the buyer. The most important distinguishing feature of an employment relationship is the employee’s dependency on the employer.

46- What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?

If the buyer does not wish to retain certain employees of the target, the target must sign settlement agreements with each employee to avoid future litigation. The procedures for proposing and negotiating settlement agreements affect the validity of such agreements; therefore, the entire process must be conducted under the supervision of a lawyer.

Data protection 

47- What key data protection rules apply to private M&A transactions in your jurisdiction?

Personal data protection is governed by the Personal Data Protection Law (6698). The rules are very similar to the rules under the EU General Data Protection Regulation and the main principles are as follows:

• Processing must be lawful and fair;
• Personal data must be accurate and up to date;
• Processing must be for specified, explicit and legitimate purposes;
• Processing must be relevant, limited and proportionate to the purposes for which the data is processed; and
• Personal data should not be retained for longer than is necessary for the purpose for which it was processed.

Data subjects have the following rights in relation to the processing of their personal data:

• to learn whether their personal data is being processed;
• to demand information if their personal data has been processed;
• to learn the purpose of the processing of their personal data and whether the data is being used in compliance with that purpose;
• to know the third parties to which their personal data is being transferred in the country or abroad;
• to request the rectification of incomplete or inaccurate data, if any;
• to request the erasure or destruction of their personal data;
• to request the reporting of the operations carried out pursuant to the above paragraphs to third parties to which their personal data has been transferred;
• to object to the occurrence of a result against them by analysing the data processed solely through automated systems; and
• to claim compensation for damage arising from the unlawful processing of their personal data.

48- What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?

Data protection has become an important part of M&A transactions for both sides of the transaction.

First, the information disclosed to the buyer and its advisers during due diligence is likely to contain the personal data of employees of the target. In order to comply with data protection laws, the following measures should be taken: 

• Only disclose data that is strictly necessary for the due diligence; 
• Ensure that data subjects are aware that their data will be disclosed; and 
• Bind the buyer and its advisers who have access to personal data to confidentiality obligations.

Second, due diligence should extend to the target’s data protection activities and policies to determine whether they have been carried out in compliance with data protection laws. In the event of a breach of data protection laws, heavy penalties may be imposed; therefore, it is advisable to obtain appropriate representations from the seller.

Environment

49- Who bears liability for the clean-up of contaminated sites? How is liability apportioned as between the buyer and the seller in case of private M&A transactions?

The enterprise that caused the waste and contamination through its activities is considered to be the waste producer and is responsible for remediating the contaminated sites and covering all related costs. If the target is the waste producer, the responsibility is indirectly transferred from the seller to the buyer after the closing.

There are two ways to protect the buyer from such risk:

• A representation from the seller regarding compliance with environmental law and the absence of any associated risk can be included in the final agreement, and the seller can agree to indemnify the buyer for losses in the event of breach of the representation; or
• If there is a specific risk agreed upon by the parties, a specific indemnity clause can be included in the agreement.

50- What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?

Failure to comply with environmental laws and conducting business without necessary permits and licences can have a significant impact on the value of the target and, in particular, on the future of its business. It is therefore recommended that environmental due diligence be carried out if the target’s operations have an environmental impact.

Tax

51- What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?

Sale of shares by a private individual: The sale of shares by an individual is subject to income tax, which can be as high as 40%. There is an exception for the sale of shares in a joint stock company. If the share certificates representing the shares to be sold have been held by the seller for more than two years, the capital gains are exempt from income tax. 

The sale of shares by a private individual is not subject to value added tax (VAT).

Sale of shares by a company resident in Turkey: The gain from the sale of shares is subject to corporate income tax at a rate of 20%. However, 75% of the gain from the sale of shares held for more than two years is exempt from corporate income tax. 

Gains from the sale of shares held for more than two years or for which share certificates have been issued are exempt from VAT.

Asset sales: The gain from the sale of assets is subject to corporate income tax. As a rule, the sale of assets is subject to VAT at a rate of 18%, but different VAT rates apply to different assets.

52- What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?

The available strategies must be determined by tax advisers taking into consideration the circumstances and conditions of the transaction and the parties.

53- Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?

Each entity that is subject to corporate income tax is a separate taxpayer and losses cannot be transferred between group companies.

54- What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?

The available strategies and potential risks must be determined by tax advisers, taking into consideration the circumstances and conditions of the transaction and the parties.

Trends and predictions

55- How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

The first half of 2023 was relatively slow, mainly because of:

• the major earthquake in February, which affected a large area and population in Turkey; and
• the presidential and parliamentary elections in May.

According to Deloitte’s Annual Turkish M&A Review 2022, Turkish M&A activity in 2022 was valued at approximately $11.5 billion, with over 450 transactions concluded.

The three largest transactions in 2022 were:

• the Turkey Wealth Fund’s acquisition of Turkish Telecom for $1.65 billion; 
• BBVA’s acquisition of the remaining shares in Garanti Bank for $1.4 billion; and 
• the $768 million investment raised by Getir, the Turkish grocery delivery company.

The gaming ecosystem in Turkey has been very attractive to investors and is expected to remain so.

56- Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? 

The Capital Markets Board’s Communiqué II-16.3 regarding companies whose shares will be traded on the Venture Capital Market came into force on 18 May 2023. According to this communiqué, private companies may sell their shares issued in a capital increase to be traded on the Venture Capital Market without a public offer to qualified investors.

As the presidential and parliamentary elections are now over, we can expect legislative reforms that may facilitate foreign investment and offer tax incentives to foreign investors.

Tips and traps

57- What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?

• Initial phase: Including both parties’ legal and tax advisers as early as possible in the discussions will help to ensure that the transaction is structured in compliance with applicable laws and to avoid potential mistakes.
• Drafting and negotiations: The legal documents and agreements used in an M&A transaction are different from those in other types of transactions. It is therefore important to engage legal advisers who have experience in M&A transactions. An inexperienced adviser may lengthen the negotiations by insisting on issues that pose no real risk while overlooking the important ones.
• Closing: A trial meeting between the legal advisers of both parties to agree on things such as the placement of the documents to be signed and the order in which they will be signed is always helpful to ensure a smooth closing.