Legal aspects when buying a business in Turkey

Legal aspects in M&A when buying a Turkish company

Should a m&a advisor be informed about the Legal landscape? Legal aspects are of high importance when buying a business. Your advisor needs to be up to date with the legal framework that applies to M&A transactions in Turkey. Here we mention some aspects that you need to consider when acquiring a company in Turkey. In general a part of the legal environment is similar to international law. We also touch upon some of the legal regulations for M&A projects in Turkey that are clearly different.

General Legal M&A introduction when buying a Turkish business

It is important for the parties involved in a transaction to agree on the structure of the acquisition and the relevant assets included in the scope, before the commencement of any negotiation process. Important to know is whether the transaction relates to an asset-deal or a share-deal. In a share deal it is important if the acquisition involves the transfer of part or all of the share capital of the target or whether the acquisition involves the merger of two or more entities. Main documents that are being used are the LOU (Letter of Understanding) and the SPA (Share Purchase Agreement). In this sense legal aspects in Turkey don’t differ that much from global practise. The LOU type that is most common to be used is a binding format which means that the Letter of Understanding has binding legal consequences.

Legal contents around the LOU

A typical LOU (Letter of Understanding) in Turkey will normally involve the following terms and conditions:

  • Names of the acquirer, seller and target company;
  • Structure of the transaction;
  • Purchase price or issue price in case of capital injection and basic assumptions regarding the valuation (cash free – debt free etc.)
  • Mechanism of payment of the purchase price and escrow mechanism if any;
  • Conditions precedent of the acquirer and seller if any, conditions precedent specific to the transaction (such regulatory approvals etc.);
  • Process forward and outline of steps (financial, legal, technical due diligence, approvals of the corporate bodies of the entities etc.) and provisions related to access of company records;
  • Conduct of target’s business for the period between signing of the LOU and signing of the SPA (Share Purchase Agreement);

Legal M&A regulations in Turkey

The fundamental legislation that governs the transfer of shares of companies and transfer of assets are, respectively, the provisions of the Turkish Commercial Code No: 6762, published in the Official Gazette No: 9353 dated July 9, 1956 (“TCC”) and Turkish Code of Obligations No: 818, published in the Official Gazette No: 366 dated May 8, 1926 (“TCO”).

Depending on the type, status and activity field of the relevant target and structure of the transaction, additional legislation and regulatory requirements might need to be taken into consideration during a M&A deal. For companies operating in different strategic fields, additional regulatory approvals and authorizations may be needed, such as the approval of Banking Regulatory Supervision Authority for M&A transactions involving banks, approval of Energy Market Regulatory Authority for M&A transactions involving energy companies, approval of Under secretariat of Treasury for M&A transactions involving insurance companies, etc.

In an asset-deal, the transfer of assets will be subject to provision of different laws, such as the Decree-Law No. 556 Regarding the protection of Trademarks for transfer of trademarks, the Title Deed Law No: 2644 for transfer of real property and the Labour Law No: 4857 for transfer of work place and employees, and further items. Both sides in a transaction in all types of deals will be required to take into consideration the provisions of the Law on the Protection of Competition No: 4054, as mergers or acquisitions exceeding certain thresholds in terms of market share or turnover, will be subject to the approval of the Turkish Competition Board.