Buying a company in Turkey can be a great opportunity—but only if you understand what you’re actually buying. Many M&A problems are not “business problems,” they’re hidden liability problems: tax and SGK exposure, undisclosed litigation, invalid contracts, missing permits, informal related-party dealings, or assets that don’t legally belong to the company. The tool that prevents these surprises is due diligence.
This SEO-focused guide explains due diligence in Turkey for M&A: what it covers, what buyers should prioritize, a practical checklist (legal, tax, financial, and commercial), red flags unique to Turkey, and how findings are converted into SPA protections like warranties, indemnities, escrow/holdback, and price adjustments.
1) What Is Due Diligence in Turkey?
Due diligence is a structured investigation of the target company before signing and/or closing. The goal is to:
- confirm ownership and corporate authority,
- identify liabilities and compliance gaps,
- validate financial quality and cashflows,
- map key contracts and operational dependencies,
- price and allocate risks in the SPA.
Practical point: In Turkey, due diligence is often the only time a buyer can force transparency. After closing, your leverage drops.
2) The Core Types of Due Diligence
Most Turkish M&A deals use a combination of:
- Legal due diligence (corporate, contracts, disputes, permits, assets)
- Tax due diligence (VAT, withholding, corporate income tax, audits, transfer pricing)
- Financial due diligence (quality of earnings, working capital, debt-like items)
- Commercial due diligence (customers, suppliers, pricing power, churn, market position)
- Optional: IT/cyber, HR, environmental, IP, real estate DD (deal-dependent)
3) Legal Due Diligence Checklist (Turkey)
A) Corporate and Governance
- Trade Registry records, Articles of Association
- shareholding structure and share transfers history
- board/manager appointments and signing authority
- shareholder resolutions and corporate books discipline
- related-party transactions and approvals
Red flag: company operates with broad signing authority and weak minutes—this often hides unauthorized commitments.
B) Share Title and Encumbrances
- whether shares are pledged
- whether there are restrictions on transfer
- whether any third-party rights exist (ROFR, options, etc.)
Red flag: missing clarity on share pledge or undocumented side agreements.
C) Material Contracts
- top customer and supplier contracts
- leases, distribution, agency agreements
- loan agreements, guarantees, security documents
- change-of-control clauses and consent requirements
- default/termination triggers
Red flag: contracts signed by unauthorized persons or contracts that terminate on change of control.
D) Litigation, Disputes, and Enforcement
- ongoing lawsuits and enforcement proceedings
- threatened disputes and demand letters
- administrative investigations and penalties
- settlement history and recurring disputes
Red flag: repeated enforcement cases or “silent” disputes not recorded in official files.
E) Assets (Real Estate, Movables, IP)
- title and encumbrance checks for real estate
- equipment ownership, leasing vs ownership
- pledges/mortgages, liens, attachments
- IP registrations (trademarks, patents), software ownership
- domain names, key licenses and sublicenses
Red flag: key IP owned by the founder personally, not the company.
F) Regulatory and Permits
- operating licenses, sector approvals
- compliance with industry regulations
- data protection compliance where relevant
- export/import compliance (if applicable)
Red flag: business depends on permits that are not transferable or are expired.
4) Tax Due Diligence Checklist (Turkey)
A Turkey-focused tax DD typically covers:
- corporate income tax returns and reconciliations
- VAT (KDV) returns and input/output logic
- withholding tax filings and service/royalty classification risk
- payroll/SGK cross-check and wage tax logic
- related-party payments + transfer pricing risks
- tax audits, assessments, disputes, and limitation timelines
- invoice sampling and suspicious supplier/customer patterns
- VAT refund positions and documentation strength
Red flag: large VAT receivables/refunds with weak documentation; repeated cross-border payments without strong contracts.
5) Financial Due Diligence Checklist (Quality of Earnings)
Key areas:
- revenue recognition and customer concentration
- gross margin stability and one-off items
- EBITDA normalization (remove owner expenses, non-recurring gains)
- working capital trends and seasonality
- net debt and “debt-like items” (overdue taxes/SGK, unpaid bonuses, related-party balances)
- capex needs and maintenance spending
- cash conversion cycle (receivables collection reality)
Red flag: profits look strong, but cashflow is weak—often signals uncollectible receivables or hidden liabilities.
6) Commercial Due Diligence Checklist (What Actually Drives Value)
- top customers: churn, renewal, pricing, dependency
- supplier stability and alternative sourcing
- sales pipeline quality and conversion rates
- competitive landscape and market share signals
- key employee dependency (single person risk)
- product/service roadmap and differentiation
Red flag: revenue relies on 1–3 customers with contracts that can terminate easily.
7) Turkey-Specific Red Flags Buyers Should Watch For
Common Turkey patterns that create post-closing pain:
- informal related-party payments (management fees, “expense reimbursements”)
- off-book workforce signals (SGK and payroll mismatch risks)
- broad signing authority and weak corporate approvals
- missing or unreliable corporate books and minutes
- unrecorded guarantees and security packages
- tax/SGK arrears classified as “ordinary payables”
- founder-owned IP and software code not assigned to the company
- contracts that require consent for transfer/control change
- “friendly” supplier invoices that don’t match real services (audit risk)
8) Turning Due Diligence Findings into Deal Protections
Due diligence findings should drive specific SPA terms:
A) Price Adjustments
- net debt adjustments
- working capital adjustments
- specific deductions for quantified risks
B) Representations & Warranties + Disclosure Schedules
- strict warranties on title, taxes, litigation
- disclosure schedules to list exceptions
- defined “proper disclosure” standard
C) Indemnities and Special Protections
- specific indemnities for known risks
- longer survival for tax/SGK
- caps/baskets/de minimis aligned with risk profile
D) Escrow / Holdback
- dedicated buckets (tax, litigation, general warranties)
- release schedule and claim mechanism
E) Conditions Precedent (Before Closing)
- corporate cleanup (minutes, authority updates)
- settlement of related-party balances
- obtaining key customer/landlord consents
- release of pledges/mortgages (if required)
9) A Practical Due Diligence Process (Timeline Logic)
A practical DD process usually looks like:
- NDA + data room setup
- request list and document collection
- Q&A and management interviews
- red flag report (early)
- full DD report + risk quantification
- SPA drafting aligned with findings
- closing conditions and post-closing action list
Best practice: demand an early red-flag memo—don’t wait for the final report to act.
FAQ
How long does due diligence take in Turkey?
It depends on deal size and document readiness. Well-prepared targets move faster; messy SMEs take longer due to missing records and clarifications.
Can buyers skip due diligence if they trust the seller?
Not recommended. Trust is not a substitute for documentation—especially for tax/SGK and contract validity risk.
What’s the biggest DD mistake in Turkey?
Not quantifying risks and not converting findings into enforceable SPA protections (escrow, indemnities, conditions precedent.
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