Company Merger and Acquisition Transactions in The New Era and How Transactions Are Being Concluded Remotely in Digital Environment?
General Evaluation
Mergers and acquisitions occur as a result of acquisition of all or part of the shares of a legal entity or acquisition of new shares issued via capital increase or acquisition of assets allocated for a business. It is expressed as “Mergers & Acquisitions /”M&A” in English language.
Increase in the number of transactions and decrease in the volume of transactions have been detected for mergers and acquisitions concluded in Turkey in 2019. According to reputable data, the total transaction volume was approximately USD 5.3 billion in 2019 with 233 transactions together with the undisclosed transactions. In 2019, the number of transactions was decreased by 9% compared to the previous year and the transaction volume was reduced by 56%.
Every impact of the coronavirus, which made its mark in 2020 and continues to affect our lives in 2021, has also affected the world economy, as the decreasing global demand and mandatory production restrictions led to a decrease in the world trade volume. However, despite the impact of the pandemic, contrary to 2019, the M&A transactions in Turkey increased in 2020 and a total of USD 9 billion transaction volume was realized through 304 transactions. After 2019, which was a difficult year in terms of M&A, the growth of approximately 70% in M&A in 2020 is an important positive development despite the pandemic.
Recently, on March 5, 2021, the Competition Authority published its 2020 Mergers and Acquisitions Outlook Report. In the report, in addition to the investor profile, origin, sector analysis and statistics of the relevant transactions; the merger demands of foreign investors were also highlighted in terms of mergers and acquisitions subject to Competition Authority’s permission and investigation. The foreign investor profile that has applied to Competition Authority for permission; German-origin investors come first with 5 transactions, United Arab Emirates and Luxembourg-origin investors come second with 4 transactions, USA with 3 transactions, followed by Austria, England, Switzerland and Qatar with 2 transactions per each country. Also, applications of foreign investors from Azerbaijan, Belgium, Czech Republic, South Korea, the Netherlands, Ireland, Sweden, Italy, Japan and Poland were examined to take over Turkish originated companies.
Prominent Sectors in Mergers and Acquisitions in 2020
In 2020, it is seen that telecom and informatics sectors are leading in terms of transaction volume, and the information sector is in the first place in terms of the number of transactions, as it was also in 2019. 3 transactions out of 10 transactions with the largest volume were in the financial services sector, and 7 were in the IT sector. In addition to the technology and information sectors, financial services, transportation, energy and manufacturing sectors were also the leading sectors in terms of transaction volume.
In particular, start-up investments, which also showed its effect in 2019, played an important role in the growth of transaction volume in 2020. The acquisition of Peak Games by Zynga as the first “unicorn” in Turkey and the acquisition of Rollic Games also purchased by Zynga are the transactions that marked 2020 within the scope of the IT sector. 112 out of 209 transactions that took place in 2020, in other words 54% of transactions that took place in 2020, is in relation to information sector and this indicates that information sector has a significant share in the pie in the sectorial distribution. As it is seen, the acquisition of digital assets has increased significantly in today’s world and this constitutes the majority of mergers and acquisition volumes.
One of the most prominent transactions in the recent period is Getir, another technology company that raised its value to $ 2.6 billion through the investment of 300 million dollars of Sequoia Capital and Tiger Global in the first quarter of 2021 and reached to the level of “unicorn”.
How Do Merger and Acquisition Transactions Take Place Remotely in Digital Media?
As we have mentioned that the information sector continues to increase its dominance in the sectorial distribution in mergers and acquisitions, let’s also talk about how mergers and acquisitions are carried out remotely in digital environments.
Due diligence
The inspection processes, as we refer as due diligence, which is one of the first steps of a merger and acquisition transaction, now take place online in almost all transactions. As it is known, in previous years, the target company (or the seller company if it is a due diligence transaction carried out for a seller,) was physically visited at the head office or related facilities, and the documents that needed to be examined were presented in physical data rooms for physical examination of consultants and related parties, and these examinations used to take days and even weeks. However, with the developing technology, the related documents are uploaded to platforms in electronic environments under the name of “virtual data rooms”, thus financial, tax and legal due diligence processes are carried out by the relevant consultants and parties with practical, fast and efficient methods. The fact that the transaction parties have become accustomed to the relevant virtual platforms in the past years has enabled them to easily adapt to these sharing platforms, especially in the Coronavirus pandemic that started in 2020. Consultancy teams and other parties to the transaction, including lawyers, were somewhat prepared for the remote management process. On the other hand, virtual platforms have also been improved in terms of privacy. In the past, it was observed that physical examination was preferred due to confidentiality; however, company documents shared on virtual platforms cannot be saved to the computer of the reviewer or be printed, in accordance with the decision of relevant parties providing access of the sharing company’s documents. In due diligence procedures, where digitalization plays a major role, investigations are carried out safely; proceeded more rapidly compared to the old method, and provides great practicality and benefit to M&A.
Remote Negotiations
The traditional and usual method in M&A was to physically meet and conclude the due diligence results, transaction and transaction documents in a meeting room for days in order to evaluate and negotiate. In a world where Coronavirus restricts physical gatherings and meetings, or where it completely eliminates them, the negotiations, which are an indispensable part of M&A, are held by the negotiation of the transaction parties in a virtual video environment. Instead of the method in which previously printed transaction documents were discussed in front of everyone on the table or reflected on a screen in meeting rooms; in 2020, the transaction documents are reflected on a screen in virtual environments, and even amendments and arrangements are started to be made to be seen by everyone, in a successfully practical way. The number of transactions and transaction volume data in M&A in 2020 is already one of the best answers to this.
Signing of Transaction Agreements Remotely
Another innovation brought by digitalization is that the relevant documents and specifically, share transfer agreements, asset transfer agreements or shareholders’ agreements executed during M&A procedures, can now be signed digitally. With “Docusign” system implemented in many countries, contracts can now be signed on tablets. According to Turkish legislation, only two types of signature recognized under the laws and these are (i) wet signature and (ii) secure electronic signature as defined under the Law on Electronic Signature. The Law explicitly states that electronic signatures shall have the same legal consequences as wet signature. Furthermore, Turkish Code of Civil Procedure states that electronic documents signed via secure electronic signatures shall be legally valid and therefore may be presented to a court as direct evidence in case of a dispute. “Docusign” is not recognized under Turkish law. Therefore, in case the validity of an agreement or article of an agreement signed with “Docusign” is proven in front of a court, the court will most likely not accept this agreement as direct evidence and may only accept it as prima facie evidence, depending on its evaluation and discretion. It should be noted that the e-signature must be obtained in Turkey. Therefore, in case of an M&A transaction with a foreign party, signings shall be made with wet signatures or the foreign party must authorize a Turkish real person with an e-signature to sign the contract via a proxy. As a result, although “DocuSign”, the new signature trend in the world, does not have an area of application in Turkey, it is possible to mention many innovations brought by digitalization when compared to the past.
The signing method of “counterpart”, which is preferred in international transactions and allows transactions to be accelerated and carried out within the framework of mutual trust, is among the usual methods used by the parties and is one of the best alternatives to prevent physical gathering and signing contracts. With this method, the signing party scans the signed contract through a scanner and sends it to the other party via an e-mail. Simultaneously, the original wet signed document is sent to other parties by cargo or mail. An important matter here is that the signing party shall be an authorized signatory.
Can the Legal Closing of the Transaction be Completed Remotely in Digital Environment?
The closing of a merger and acquisition is not possible yet due to legal regulations in our country. In other words, the closing process can be managed remotely, but it is not yet possible to legally finalize it in a digital environment. For instance, in the event of a transaction subject to transfer of registered shares, according to Turkish law, if a registered share certificate has been issued, the transferor shareholder or its proxy must endorse and deliver the registered share on behalf of the transferee. It is not legally possible to carry out such transactions through documents or certificates created in the digital environment according to the current regulations; however if there are any changes regarding this in the future, we will implement it all together. In terms of bearer share certificates, according to the new regulations of Turkish Commercial Code, registrations of bearer share certificate holders and notifications regarding these shares for non-public joint stock companies, will be kept in an electronical environment created by the Central Registry Agency (“CRA”). In the transfer of bearer share certificates, the notifications made to CRA by electronic methods will be effective in asserting the rights arising from these shares, against the company and third parties.
The situation where the transfer of registered shares cannot be legally completed yet in a digital environment, stipulates a similar situation for the transfer of assets; for instance, if there is a title deed transfer in the transfer of assets, although the deed appointments are made remotely in a digital environment, according to the relevant legal regulations, the signings must be made to be completed in the presence of relevant land registry office.
Other transactions that digitalization does not fully cover and still needs to be done physically, are notary public and trade registry transactions. In order for notarization and registration transactions before the trade registry of the board of directors and / or general assembly resolution to be completed, the relevant documents must be physically submitted to the notary public and trade registry offices. It should be noted that the creation of a digital system for electronic general assemblies and Central Registry System (MERSIS) system in order to conduct and to register trade registry transactions, has contributed to the process recently. It would be appropriate to say that there are additional steps that needs to be completed are needed in order to implement them to daily life, procedure and law.
General View on 2021
According to reputable data, company mergers and acquisitions are expected to be higher in 2021 than in previous years. Considering the fact that IT sector is affected more positively by the epidemic environment, estimations for the increase of shares in mergers and acquisitions are strong.