|One of the premises behind this site is the existence of grandstanding in Turkey, and therefore should be addressed to its relevance in the Turkish private equity industry. As defined in a previous post, the grandstanding hypothesis is derived from a paper by Paul Gompers (1996) and is referenced in his and Josh Lerner's book, "The Venture Capital Cycle". Melody Keung's "New Empirical Study of Grandstanding in the VC Industry" provides an analysis for those of you that need a comprehensive background. With the limited existence of IPO's annually and the lack of enthusiasm by the general public to trade stocks in the Turkish market, news and publications of mergers, acquisitions and other exits provide meager opportunity for the grandstanding behavior (or the rush to exit). Then again, the demand to start new or follow-up funds is not very high. Likewise, grandstanding in Turkey must be modified to not only represent taking companies public without a rush, but also taking companies through successful due diligence-consulting activities, mergers, acquisitions and other exit opportunities. The issue of young venture capitalists under pricing companies on exit, however, still remains, but this might be considered a minor side effect of success in the Turkish environment. Nevertheless, the small number of successful exits in Turkey not only provides the opportunity for grandstanding (without the rush), but also serves as an indicator of the size, growth, and potential success of the Turkish private equity industry.
Whether Grandstanding in Turkey exists or not, one issue remains: the successful exit. The fact that the PE/VC industry is exiting with or without the rush to exit is a success in itself and evidence of deal flow in this budding industry. The success story of Uno and Turkven/Advent International is one example. Taken from the press release, Evren Unver, Director at Turkven, admirably stated, "This is a text book example of how private equity can help Turkish companies develop..."The projected public offering of Probil in December 2006 and Isbank's IsRisk is another example. That these exits/deals occurring at all are a good indicator of traction and deal flow in the Turkish PE/VC industry, and very much reason to stand up and cheer. Whether or not these exits were rushed to establish credibility for the PE/VC firms is debatable but in the bigger picture, it validates the Turkish PE/VC industry.
In addition, if we are to believe the future prospects of Foreign Direct Investment (FDI) (forecasted to reach $20 billion in 2007) in Turkey, the reasons to grandstand definitely exist. In order to prove Turkey's PE/VC firms' experience in the industry and validate its efforts toward a return for their limited partners, Turkish PE/VC firms undoubtedly might want to rush toward an exit, in the face of the greater potential for international investment with foreign partners. The success of future exits, which are transparent with limited government restrictions, can only help to influence future FDI, M&A and due diligence activities in Turkey, while hopefully stimulating more opportunities for VC's and entrepreneurs alike.
This brings us to our conclusion and a final point regarding corporate governance and minority shareholder rights. Erkan Kele's Knowledge Revisited Blog of Turkish Corporate Governance references the example of Galatasaray Sportif A.S. and AIG's failed relationship where majority shareholders prevented minority shareholders from appointing members to the Board of Directors. This eventually found its way into a Turkish and an international arbitration court whereby AIG was vindicated. However, the damage was done. Until Turkish law can be modified to respect the rights of minority shareholders, there will be no reason for Turkish PE/VC firms to grandstand in order to attract investment (or foreign investors) when, surely, greater governance issues exist around the board of directors' table.