Türkiye’s M&A landscape: What’s on the horizon for 2025?

Türkiye’s mergers and acquisitions (M&A) outlook in 2025 is shaped by several factors. This report outlines our assumptions on the key deal drivers expected to attract investors to Türkiye this year, particularly in high-growth sectors, building on trends observed in 2024.

Key factors influencing M&A activity include the availability of private equity 'dry powder,’ which was also the case the previous year, a policy shift to decrease interest rates (potentially boosting initial public offerings (IPOs)), and economic pressures leading to restructuring transactions.

However, challenges such as environmental, social and governance (ESG) regulations, valuation gaps, and financing difficulties may slow the transaction pace. Despite these, Türkiye's M&A market shows strong potential for 2025.

Our series “M&A Outlook 2025: Renewed confidence amid turbulence” indicates the growing optimism for the M&A market in 2025. Several factors support this positive outlook, including greater geopolitical stability, improved macroeconomic conditions, regulatory loosening, capital availability and emerging sectors like artificial intelligence (AI), healthcare, and energy transition. “M&A Outlook” indicates that, despite uncertainties, CEOs and private equity leaders are expected to capitalize on these opportunities to position their organizations for the future.

In 2025, we expect that M&A will remain a key strategic tool for companies to drive growth. In this article, we will explore the anticipated M&A trends in the Turkish market for 2025.

Deal drivers for Türkiye

PE and VC dry powder

Private equity (PE) and venture capital (VC) companies’ involvement in M&A deals increased in 2024, compared to 2023, which appears to carry into 2025 as well. PE dry powder is a major driver in the M&A market, directly influencing deal activity. However, ticket sizes in Türkiye remain relatively small which leads to the co-investment alternative. Despite the volume of ticket sizes, we expect an increase in the number of M&A deals in 2025.

Policy to decrease interest rate

The decrease in interest rates has a positive effect on the M&A market as it creates a more cost-effective lending process. It also boosts competition as the capital required to acquire a company becomes more affordable. The policy of interest rate cuts could also potentially have a beneficial impact on the public offering process, potentially increasing investor appetite.

Global political certainty

As mentioned in “M&A Outlook”, in 2024, political uncertainty from elections in over 100 democracies weakened economic and M&A activity. Although investors are still assessing the impacts of the elections, as we move into 2025, greater political stability is expected in several major countries. Improvement in geopolitical certainty will boost economic and M&A activity.

Political certainty in the global market will certainly have a positive effect on investments in Türkiye by global investors.

Economic pressure

Economic pressure, debt, and financial limitations can place considerable strain on a company's financial well-being which may eventually lead to restructuring initiatives to improve financial stability. These restructurings sometimes take the form of asset sales as well or alternatively capital contributions from PEs/VCs. If the financial distress continues, we expect to see asset sales or other corporate restructuring in 2025 as well.

Additionally, financial difficulties undergone by exporting companies due to suppressed exchange rates caused by various factors such as carry trade will lead PEs/VCs to consider these companies as potential investment opportunities. The financial challenges arising from exchange rates will create an environment where companies need external investment to strengthen their growth strategies and financial structures. This, in turn, will generate new opportunities and investment activity in Türkiye's PE/VC market.

Peaking sectors

• AI-inspired investments: In 2025, AI is expected to remain a crucial tool for M&A transactions, while investment in AI companies is also projected to persist. On the other hand, as the EU AI Act became enforceable on August 1, 2024 and the AI Law of Türkiye is on the way, evaluating the risks associated with targeted AI systems in terms of AI laws will play a vital role during the due diligence process.

• Energy: Demand in the energy sector, especially renewable sources, is expected to grow in 2025 due to the energy transition, increasing power demands driven by AI and zero-carbon initiatives.

• Infrastructure: Infrastructure transactions, both conventional and digital, will attract investors based on several factors, such as changing manufacturing plants due to supply chain shifts, the search for digital centers, decarbonisation and population growth.

Financing

IPOs

A decrease in interest rates may encourage investors to prefer public offerings for exits or companies searching for investments. However, complexities and increased IPO thresholds could potentially hinder this trend. As a result, it remains uncertain whether IPOs will be the preferred exit and/or investment strategy in 2025.

Cash reserves

Improving macroeconomic conditions is expected to provide dealmakers with the opportunity to leverage strong cash reserves, making cash a preferred method for financing M&A transactions in 2025.

Sustainability-linked loans

Sustainable financing is expected to become a more preferred financing method in 2025 with the growing importance of sustainability globally and having more favourable terms (for example, reduced interest rates). To achieve more favourable financing, targets meeting ESG criteria, or finance projects aligning with sustainability criteria, sustainability-linked loans will attract investors. Companies that successfully incorporate ESG into their M&A strategies and demonstrate strong sustainability commitments will most likely enjoy improved access to capital in 2025.

Obstacles

ESG regulations

Considering the scrutiny in ESG regulations, investors will also consider ESG due diligence while investing, which could complicate the acquisition process. Hence, ESG risks will be a crucial determining factor in M&A processes. Foreign regulations impacting Turkish companies (such as supply chain requirements or regulations on carbon border adjustment mechanisms) become a burden on Turkish companies trying to attract foreign investors. However, a backlash is also expected in the EU arena in terms of ESG legislation due to economic concerns and political shifts around the world.

Valuation gaps

Although it is expected to narrow down in 2025, valuation gaps between the sellers and investors arising from factors such as risk perception and growth projections, are still considered one of the significant obstacles in M&A.

Financing difficulties

While the decrease in interest rates has had a positive impact, economic uncertainties persist in exerting a negative influence on acquisition financing costs. Financing institutions continue to demand robust collateral, posing a significant barrier to M&A transactions.