AIG Continues Push Into Turkey

AIG Capital Partners (AIGCP) has made another investment in Turkey, its largest to date, a deal that represents its third bet on a young country undergoing explosive growth.

AIGCP said earlier this month it took a substantial position in For You Bakim Ürünleri Magazalar L.S., a fast growing convenience store chain. A person familiar with the matter said the all-equity purchase, which included a co-investment from Eastern Retail Holding N.V., was for 30% of the company.

This minority position is a typical move for AIGCP, which likes to keep management incentivized by keeping them in the majority holder’s position, said Paolo Zapparoli, a managing director with AIGCP, who also has a board seat. No terms were disclosed and Zapparoli declined to comment on the size of the stake as well as the company’s earnings and sales.

Based in Istanbul, For You is “essentially providing products to the consumer in the emerging middle class of Turkey in a cost efficient manner,” said Zapparoli.

The company plays into Turkey’s attractive demographics. The nation, whose population has an average age of 27, is expected to surpass Germany in population over the next ten years.

The company, which is just four years old, is opening an average of two new stores a week, and has already launched 55 stores. Most are about 200 square meters in size and sell products such as diapers, packaged food, cosmetics, deodorant, shampoo and toothpaste. Its product offering could be considered similar to a CVS or Walgreen’s, but is sold at a much lower price point, said Zapparoli.

The closest comparison is the multibillion dollar German leader in discount retailing, ALDI, which stands for Albrecht-Discount. ALDI is reputedly Germany’s first discount chain and now has expanded into many countries. For You is still located only in Turkey and Zapparoli said expansion internationally is “not on the horizon” since the opportunity for domestic growth is so vast.

Political stability and succession into the E.U. have put Turkey on the map for a number of private equity investors. According to one study, between 1995 and 1999, foreign investors only made about $100 million worth of investments in Turkish businesses. That amount was matched in 2000 alone and since then has been on the rise. With a market of 70 million people, the country will be among the largest in Europe within a decade.

It’s this population explosion that has AIG excited. The firm’s other investments in Turkey include AFM Cinemas, a movie theater business, and Galatasaray, a sports club and soccer team.

“[In Turkey] you have a market with enormous potential. These people are aging and will require products and services to fit their income,” said Zapparoli.

AIGCP opened an office in Turkey in 1999 and at that time met Aziz Zapsu, CEO of For You, who was active in other retail investments in Turkey. Zapsu will stay on in his management role.

AIGCP is the emerging markets division of AIG Global Investment Group. As of March, AIGCP and affiliates managed more than $8 billion in emerging market private equity funds. —M.C.