Due Diligence In Turkey -- Share Price Structuring For Sentimental Assets

When entering into a partnership in Turkey, taking over a business or even sometimes within your own company you may need to find out the risks that might be in store for you. Due diligence is an important process and this article aims to provide the outlines of this process with some special hints about Turkish business practices.

The legal mechanics of buying shares of an existing company or business are often straightforward but it is important to follow a carefully planned process for due diligence before closing a deal. As part of due diligence the buyer usually finds out not only the risks but also the complex mechanisms that slow down the company's operations. Therefore due diligence also serves to simplify the corporate structure when taking over a company

The main issue of due diligence is the cooperation of the target company. It is of the utmost importance that the information provided by the company is accurate, up-to-date and complete. Preparing the data is the job of the seller though this cannot be done without the instructions and cooperation of the buyer.

The check list or query list, as we call it, usually has the basics to determine and identify the assets held by the target company, whether tangible or intangible. It is important to address the assets as they are the main driver for calculating the value of a company. In some cases the buyer is not interested in some of the assets held by the target company and in such a situation these “uninteresting” assets that may have significant value can be left with the seller by transferring the asset to another company of the seller.

The most living example of this form of structuring is related to the real estate of a company. In some cases the buyer is not interested in a plot of land or a property held by the target company, though this might be a key driver to a high and unnecessary share value. The major reason for conducting a thorough due diligence that focuses on understanding the mechanisms in the target company is to create the base for the evaluation of the share price. The intention of the parties may not be very clear as to what the buyer really wants to buy and what the seller really wants to sell.

When it comes to Turkish business practices, things often become sentimental and personal, especially when the target company is a family business. In some cases the owners do not really know what they want to sell and what they do not. As cited above, real estate is a good example of such a scenario. An unimportant and unnecessary real estate of the seller might be the last concern or at the bottom of the buyer's wish list. Perhaps one of the trademarks of the seller that is not even known to the buyer might have a significant sentimental importance to the seller. A thorough due diligence report thus addresses such personal notes or points and might give a “sentimental map” of the company.

Certainly it is very important to know the negatives/positives of a company and the main idea of due diligence is to find out and define the risks of the company. However sentimental value is very important to Turks when working on the price during the negotiation phase.

NOTE: Berk Çektir is a Turkish lawyer and available to answer questions on the legal aspects of living and doing business in Turkey. Please kindly send inquiries to b.cektir@todayszaman.com. If a sender's letter is published, names may be disclosed unless otherwise is expressly stated by the sender.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not rely solely on the information in this column.

BERK ÇEKTİR (Cihan/Today's Zaman)