Retail Sector Update

Corporate FinanceJune 2012

1

2011-2012 Transaction highlights

Deloitte Turkey Corporate Finance (DTCF) assumed various financial advisory roles in recent M&A transactions in the retail sector in Turkey. DTCF advised clients on the sell-side and buy-side both in M&A Advisory and Due Diligence Services as well as in valuation and market analyses. Selected engagements are listed below:

Turkey

Vendor due diligence services to a leading shoe retailing and manufacturing group

Turkey

Sale advisory to a footwear retail company

On-going Turkey

Sale advisory to an apparel

On-going

retail and manufacturing company

Turkey

Lead financial advisor to Silk & Cashmere

In its sale to Eastgate Capital Group

Turkey

Vendor due diligence services to YKM

Turkey

Acquisition advisory to a Gulf based group regarding its proposed acquisition of a local department store chain

Discontinued

Turkey

Acquisition advisory to a Gulf based group regarding its proposed acquisition of a local women’s apparel and footwear retail group

On-going

Turkey

Review of the retail operations of Café Crown

Regarding a joint -venture establishment with Caribou Coffee

Turkey

Due diligence services to Naspers

Regarding the acquisition of Markafoni

Turkey

Due diligence services to a foreign retail chain regarding its proposed acquisition of Praktiker

Turkey

Vendor due diligence services to a Turkish hosiery products manufacturer and retailer

Turkey

Due diligence services to 212 Capital Partners

Regarding the acquisition of balerin.com

2

Industry trends

Macroeconomic PerformanceAccording to the official figures, Turkey is the 18th largest economy in the world with a GDP of US$772 billion in 2011. Due to the fragile global economic environment as well as the need to reduce the current account deficit, the Turkish economy is expected to make a soft-landing in 2012 and to regain momentum in the following years in a more sustainable manner. The economy, which grew 8.9% in real terms last year, is expected to grow by 3.5% in 2012.

Industry CommentaryThe Turkish retail market is continuing its sustainable growth in line with increasing purchasing power per capita and the development of modern and organized retailing. The per capita private consumption of US$7,350 in 2011 is expected to exceed US$10,000 by 2015. Strong economic performance supported by a young population stimulates growth in spending per capita. As a consequence of the strong demand from Turkish consumers, retail investments have been experiencing great momentum in recent years.

Thanks to a number of fueling factors, Turkey became one of the most popular destinations for foreign investors including private equity firms, global supermarket chains, fashion retailers and several other retail concepts.

A: Actual, F: ForecastSource: EIU, Turkstat

648732

615735 772 778

8861,006

1,1221,224

4.7%

1.1%

(-4.7)%

8.9% 8.5%

3.5% 4.0% 5.2% 5.3% 5.1%

-8%

-4%

0%

4%

8%

12%

0200400600800

1,0001,2001,400

US$

mill

ion

Macroeconomic Performance

GDP (US$ bn) at Current Prices Real GDP Growth (%)

6,4807,090

6,0407,140 7,3507,640

8,4709,330

10,21010,990

0

2,000

4,000

6,000

8,000

10,000

12,000

US$

Private Consumption per CapitaCAGR (2012-2016)

= 9.5%

3

The total size of the retail sector (organized and unorganized) in Turkey is expected to reach US$313 billion in 2012 and grow with c.10% CAGR until 2016.

Organized retail, a highly promising segment due to increasing per capita consumer spending and relatively weaker presence up to now in comparison with developed markets, is estimated to be c.40% of the total retail industry in Turkey.

Limited total surface rent area, compared to robust consumer demand and rapid urbanization, triggered large scale retail investments across the country. The number of shopping malls in Turkey increased by more than 20% in the last two years and reached c.300 at the end of 2011. In the same period, the total surface rent area in Turkey increased by more than 30% and reached c.7.3 million m2.

Category Commentary

Food and BeverageFood and beverage, which has the largest share (c.52%) in the Turkish retail sector as of 2011, is expected to grow at c.9% CAGR in the next five years and reach US$233 billion in 2016.

Home Retail The home retail market in Turkey, comprised of household furniture and textile products, reached c.US$48 billion in 2011. The market is expected to grow CAGR c.10% in the next 5 years and reach c.US$70 billion in 2016.

Apparel Retail Starting from 2012, apparel sales in Turkey are expected to grow CAGR c.12% and reach c.US$41 billion in 2016.

Consumer ElectronicsConsumer electronics, having c.4% share in the Turkish retail sector, are expected to grow by c.65% in the next 5 years. Consumer electronics spending per capita is also expected to increase by more than 50% in the same period.

Internet RetailAccording to the Interbank Card Centre, the total value of e-commerce transactions was US$13.6 billion in 2011 which is 50% higher than in 2010. Out of this US$13.6 billion, the consumer goods internet retail market(*) amounted to c.US$1.3 billion and is expected to grow with a CAGR of c.12% between 2012-2016, reaching c.US$2.3 billion.

* Excluding C2C sites, sales

of automotive products,

tickets for events and travel,

gambling, quick delivery of

food, magazines, household

goods, etc.

Food52%

Non-Food48%

Food vs. Non-Food

Organized40%

Market Structure

Source: EIU

Unorganized60%

143 155 133 156 158 164 185 202 217 233

121 133115

139 144 149170 187 204 224

0

100

200

300

400

500

US$

bill

ion

Retail Sales in Turkey

Food Non-FoodSource: EIU

264 288248

295 302 313355

389421

457CAGR: 3.4%

CAGR: 9.9%

4

Industry focus: internet retailing in Turkey

Internet Penetration Internet penetration in Turkey has more than doubled in the last 5 years and reached 45% in 2011. Mainly driven by the young population and increasing income level, internet penetration is also positively affected by discounted prices and expanded coverage.

Turkstat’s household information technology usage survey, conducted between January-March 2011, reveals that 47% of internet users in Turkey used the internet to find information on goods and services whereas 7% purchased goods during the period.

Internet RetailStill in its infancy, the internet retail sector in Turkey is growing at a remarkable pace through a number of brand new initiatives and strong demand from online consumers.

Data maintained by the Interbank Card Center, the Turkish clearinghouse for bank cards, shows that e-commerce transactions (including non-retail) through virtual point of sales (VPOS) grew with a CAGR of 60% in the past seven years and reached c.23 billion TL in 2011.

According to e-commerce intelligence source Internet Retailer, two Turkish companies appear in the Top 150 internet retailing websites of Europe. Hepsiburada.com (ranked 89th), a group company of Doğan Holding operating as a mass merchant, was the leading internet retailer in Turkey in 2011 with c. US$190 million revenue followed by Markafoni (ranked 143rd), a pioneer online apparel retailer, with a revenue of c.US$95 million.

Online apparel shopping clubs offering products at discounted prices and deal-of-the-day websites are popular destinations among Turkish internet users.

Increasing consumption through online media shows that security concerns are not a headwind for Turkish consumers as they were in the past. According to the Interbank Card Center, there are nearly 7,400 ‘‘3D Secure’’ registered virtual shops in Turkey as of 2011.

Increasing activity of private equity investors and venture capitalists with a focus on e-commerce is becoming a dominant trend in the sector.

1,388 2,412

5,537

9,08910,274

15,225

22,874

0

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009 2010 2011

mill

ion

TL

E-Commerce Transactions Through VPOS*

* Virtual Point of SaleSource: The Interbank Card Center

30%

36% 38%

42% 45%

0%

10%

20%

30%

40%

50%

2007 2008 2009 2010 2011

Internet Penetration in Turkey

Source: Turkstat

5

M&A snapshot

M&A Activity in Turkish Retail SectorM&A activity in the Turkish retail sector had shown a fluctuating trend in recent years when compared to the global marketplace. However, by comprising 4.3% of the total M&A deal value, the Turkish retail sector proved its potential in a year like 2011 where private sector activity was dominant.

There were 11 transactions(*) in the retail sector in 2011, with an estimated deal value of c.US$640 million. In the last five years, 37 retail deals have been generated with an estimated value of US$4.5 billion.

In the first quarter of 2012, the Turkish retail sector saw profound activity through 5 deals(*).

Highlighted TransactionsFebruary 2012 - Boyner, the leading department store chain in Turkey has announced that it signed agreements to acquire a 63% stake in its major competitor YKM for a consideration of US$108 million. December, 2011 - East Gate Capital Group, Dubai based private equity and real estate investment subsidiary of NCB Capital, made its first investment in Turkey and acquired a 49.8% stake in Fabeks, owner of the Silk & Cashmere brand, which is one of the leading cashmere brands globally, for an undisclosed sum.

June, 2011 - Gözde Girişim Sermayesi, private equity investment arm of Yıldız Holding, acquired 99.6% of Şok Marketler from Migros for a consideration of US$380 million.

May, 2011 - Kuwaiti investment company Global Investment House acquired a stake in Yargıcı, Turkish retailer of women’s apparel and accessories, for an undisclosed sum.

3,799

2,936

2,073

2,434 2,564

138 59 41 49 77

3.6%

2.0% 2.0% 2.0%

3.0%

0%

1%

2%

3%

4%

0

1,000

2,000

3,000

4,000

2007 2008 2009 2010 2011

US$

bill

ion

Global M&A Activity

Total Deal Value Retail Deal ValueSource: Mergermarket, Thomson Reuters

19.316.2

5.2

29

15

0.33.3

0.1 0.2 0.61.6%

20.4%

1.9% 0.7%

4.3%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011

US$

bill

ion

M&A Activity in Turkey

Total Deal Value Retail Deal Value

Source: Mergermarket, Dealwatch, Deloitte Data

* Excluding internet retailing transactions.

6

M&A Activity in the Turkish Internet Retailing SectorThanks to rapidly growing internet penetration and an increasing number of online merchants, the internet retailing sector in Turkey has been experiencing a boom. In order to benefit from the high growth potential of the sector, local and foreign investors are showing great interest in established internet brands as well as to promising initiatives being brought to light by local entrepreneurs.

The Turkish internet retailing sector hosted a record level of activity with a total of 20

transactions since the first transaction in 2010. Apparel discount shopping club websites being in the first place, deal-of-the-day websites and online apparel retailers attracted most of the attention during the period.

M&A activity in the Turkish internet retailing sector reached its historical peak in 2011 with a total of 12 transactions. The first quarter of 2012 which saw 7 deals also signals a strong trend in terms of M&A activity. The statistics for M&A activity for 2011-1Q12 period are presented below:

Highlighted TransactionsMarch 2012 - Markafoni, backed by Naspers, acquired 75% of Doğuş Holding’s En-moda, an apparel discount shopping club website which became operational in June 2011.

December, 2011 - E-commerce giant Amazon made its first investment in Turkey by acquiring 19% of Çiçeksepeti, Turkey’s leading online flower and gift retailer.

August, 2011 - USA-based private equity houses Tiger Global Management and Kleiner Perkins Caufield & Byers acquired a total of 37% shareholding in Trendyol, leading Turkish apparel discount shopping club website. Prior to this transaction, in January 2011, Tiger Global Management had acquired a 20% stake in the same company.

May, 2011 - South African multinational media company Naspers acquired 68% of Markafoni, one of the pioneer apparel discount shopping club websites of Turkey for a consideration of US$86 million.

April, 2011 - eBay announced its acquisition of an 83% shareholding in the Turkish consumer-to-consumer website Gittigidiyor for US$217 million. Prior to the transaction, eBay was holding a minority stake in the company.

Type of Investor Investor Origin Transactions by Business Area

7

Transactions in the Turkish internet retail sector

# Acquirer Origin Target

1 212 Capital Partners Turkey Butigo.com

2 212 Capital Partners Turkey Balerin.com

3 Etohum Yatırım Turkey Biacayip.com

4 Tiger Global Management USA Sporcum.com

5 Private Investors Turkey e-bebek.com

6 Doğan Online Turkey Evmanya.com

7 Markafoni.com Turkey En-Moda.com

8 Amazon USA Ciceksepeti.com

9 Tiger Global Management USA Trendyol.com

10 iLab Ventures Turkey Unnado.com

11 Bilyoner Interaktif Hizmetleri Turkey Bombastik.com (Former Grupca)

12 Hummingbird Ventures Belgium Ciceksepeti.com

13 eBay USA GittiGidiyor.com

14 iLab Ventures Turkey Cimri.com

15 Naspers Netherlands Markafoni.com

16 ePlanet Capital USA Vipdukkan.com

17 Intel Capital USA Grupanya.com

18 Tiger Global Management; Kleiner Perkins Caufield & Byers USA Trendyol.com

19 Quants Holding Switzerland Grupfoni.com

20 Tiger Global Management USA Trendyol.com

Source: Deloitte Annual M&A Reviews

2011

1Q12

2010

Area of Business Stake Deal Value (US$ million)

Shoe Retailing N/D N/D

Cosmetics Retailing N/D N/D

Lifestyle Products and Gifts N/D N/D

Sportswear Retailing 68.3% N/D

Infant & Baby Products Retailing 50.4% N/D

Furniture and Home Products Retailing 100.0% N/D

Apparel Discount Shopping Club 75.0% N/D

Online Flower and Gift Store 18.7% N/D

Apparel Discount Shopping Club 20.1% N/D

Apparel Discount Shopping Club 33.0% N/D

Deal-of-the-Day Website 30.0% N/D

Online Flower and Gift Store N/D N/D

C2C Online Auction and Shopping 83.0% 217.0

Electronics Retailing 100.0% N/D

Apparel Discount Shopping Club 68.0% 86.0

Apparel Discount Shopping Club 28.2% 5.0

Deal-of-the-Day Website N/D N/D

Apparel Discount Shopping Club 36.7% N/D

Deal-of-the-Day Website N/D N/D

Apparel Discount Shopping Club N/D N/D

8

US$ millionMarket Cap

as of 25 May 2012

Enterprise Value (EV) EV/Sales EV/EBITDA

Global Apparel RetailGAP 13,336 13,063 0.9x 6.4xHermes 33,861 35,109 9.4x 26.9xMacy's 15,565 20,526 0.8x 5.8x

Turkish Apparel RetailAltınyıldız 610 884 2.4x 11.1xBoyner 152 205 0.5x 6.3xVakko 117 150 1.1x 9.7x

Global Food RetailCarrefour 12,200 28,287 0.3x 10.0xMetro 9,274 15,023 0.2x 3.8xTesco 38,955 53,750 0.5x 6.5xWal-Mart 222,098 253,123 0.6x 7.3x

Turkish Food RetailCarrefourSA 938 958 0.7x 83.6xKiler 228 378 0.8x 12.1xMigros 1,497 2,587 0.8x 11.7xTesco Kipa 479 819 0.7x 11.5x

Source: Capital IQ, Public Disclosure Platform

P/E

17.4x47.2x12.2x

32.2x11.7x27.7x

n/a11.9x8.7x

13.0x

n/an/a

89.2x99.8x

Market snapshot

9

10

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