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Inside Out: Turkey’s First Unicorn

Inside Out: Turkey’s First Unicorn

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On June 3, 2020, CEE Legal Matters reported that White & Case and its associated Turkish firm, GKC Partners, had advised interactive entertainment company Zynga Inc. on its USD 1.8 billion acquisition of Istanbul-based mobile gaming company Peak Oyun Yazilim ve Pazarlama, A.S. Baker McKenzie, working with its Turkish affiliate, the Esin Attorney Partnership, advised Peak on the transaction, which represented the largest acquisition of a start-up in Turkey to date, and makes Peak the country’s first “unicorn.” Dentons, along with its affiliate Balcioglu Selcuk Ardiyok Keki Avukatlik Ortakligi, advised selling shareholder Hummingbird Ventures CVA, Abcoo advised Peak Founder and CEO Sidar Sahin, the Verdi Law Firm advised selling shareholders Earlybird Verwaltungs GmbH, Evren Ucok, and Demet Suzan Mutlu Ucok, and BTS & Partners advised selling shareholder Endeavour Catalyst.

The Players:

Counsel for Peak: Eren Kursun, Partner, Esin Attorney Partnership

Counsel for Zynga, Inc: Asli Basgoz, Partner, White & Case

Counsel for Hummingbird Ventures: Selahattin Kaya, Counsel, BASEAK

Counsel for Sidar Sahin: Murat Aygun, Partner, Abcoo

CEELM: How did you each become involved in this matter? Let’s start with you, Eren.

Eren: We first represented Peak Oyun Yazilim ve Pazarlama Anonim Sirketi – “Peak” – in 2017, when they sold their card-and-board-games studio to Zynga Turkey Oyun A.S. Our team had assisted Peak in that initial card-and-board-games sale, and we had also represented some of the sellers in various transactions, so we were familiar with the company and most of its shareholders. We were appointed by Peak and its shareholders in March for this matter.

CEELM: What about you, Asli?

Asli: We represented Zynga in its first Turkish acquisition, of Gram Games, for USD 250 million in 2018 and in its acquisition of the Finnish gaming company Small Giant Games for USD 560 million, also in 2018. So Zynga knows us very well and works with us on their international acquisitions.  Very recently, once again we represented Zynga in the acquisition of 80% (and later of the balance) of Istanbul-based Rollic, a fast-growing hyper-casual mobile game company.  That acquisition represented Zynga’s entrance into the hyper-casual game market, one of the fastest-growing gaming categories.

CEELM: And you, Selahattin?

Selahattin: Hummingbird contacted us in Q4 2019 for the purposes of assisting them on corporate matters with respect to their Peak Games investment and also for a potential sale process.

CEELM: And you, Murat?

Murat: In 2011, we provided legal services to Alpha Investment LLC with respect to the acquisition of 16% shares in Peak. We then represented Alpha in its exit from Peak in 2017. Following the closing of that deal, we met with the management of Peak. They informed me that Peak would have liked to retain us as external counsel.

After obtaining the consent of Alpha in order to avoid any conflict of interest, we started rendering our services to Peak. As such, since 2018, we have been providing legal services to Peak with respect to its daily operations (e.g., the preparation/negotiation of contracts with third parties, providing legal advice in various aspects of law, including advising on the data protection compliance arrangements, etc.) as well as managing certain claims and lawsuits involving Peak.

When Zynga became interested in Peak, we were naturally involved in the matter from the outset and asked by Sidar to represent him in this deal.

CEELM: What, exactly, was the initial mandate when you were each retained for this project, at the very beginning?

Eren: Our initial mandate was representing all shareholders and Peak in relation to the sale of Peak.

Asli: We were retained for the entire M&A transaction at the outset. Zynga’s legal team, including GC Phuong Philips, Assistant GC Matt Tolland, and Senior Counsel Samir Najam (working closely with their specialist teams) team up with their external counsel early and integrate them into the deal team.  That is one of the many reasons it is such a pleasure to work with Zynga.

Selahattin: Our initial mandate was handling corporate law matters, including representing Hummingbird on the Peak Games board. For this purpose, our Managing Partner, Galip Selcuk, was appointed to the board as the representative of Hummingbird, one of the board member of Peak Games.

Murat: The representation of Peak was discussed among the shareholders prior to the kick-off of the project and it was eventually agreed upon by them that it would be best if (i) Peak were represented by a law firm that was not representing Peak and/or any of the shareholders at that time; and (ii) each shareholder appointed his/its own counsel for the project.

It was contemplated by the parties that all the shares of Peak (including those held by Sidar Sahin) would be acquired by Zynga with the current management team remaining in place and Peak continuing to operate in Turkey. In this context, Sidar asked us to represent him to conduct and conclude on his behalf all negotiations with respect to the relevant acquisition. The initial scope of our assignment was completely in alignment with the final product. We represented the management throughout the whole process, as Peak will continue to be managed by the management team. 

CEELM: Please describe the deal in as much detail as possible, including your roles in helping make it happen.

Eren: This deal is a landmark in the Turkish startup ecosystem and is Zynga’s biggest transaction since its incorporation. Both sides were very enthusiastic about the transaction and excited to make this partnership happen. Within the scope of this transaction, Zynga paid half of the total purchase price in cash and the other half in Zynga stocks, so the sellers, as the former shareholders of Peak, became shareholders of Zynga as well.

The transaction involved seven sellers and four different law firms. We arranged all communication between the sellers and their counsels, and acted as the point of contact for Zynga and their counsel, as the lead counsel for the sellers and Peak. Combining all of the comments from the sellers and our colleagues in different time zones was very challenging, considering the time pressure. However, we managed to complete our drafts and mark-ups, including all parties’ comments, in less than a week, as our Istanbul, London, Washington, Chicago, and Dusseldorf teams acted as a single unit and were able to provide fast and accurate advice to Peak. Further, as Peak’s legal representatives, we worked hard to align all parties and find solutions that work for everyone.

Asli: Here is some background on the parties: Zynga is a global leader in its sector, founded in 2007 with the mission of “connecting the world through games.” Its games, such as Words with Friends, FarmVille, and Zynga Poker are played by hundreds of millions of players each month. Peak, a globally successful mobile gaming company, has two forever franchises, Toon Blast and Toy Blast, that have consistently ranked in the top 20 in US IPhone grossing games and are played all over the world. It was founded in 2010 by Turkish entrepreneur Sidar Sahin.

As for the structure of the deal, this basic information (which has been well-publicized) is summarized from Zynga’s own disclosures and filings. Zynga, Inc., (a Delaware Corporation) purchased all of the issued share capital of Peak from the sellers in exchange for consideration of approximately USD 1.8 billion, of which (a) USD 900 million was paid in cash, subject to adjustments set forth in the Share Sale and Purchase Agreement and (b) the remaining USD 900 million was satisfied by the issuance of shares of Zynga Class A common stock, based on the volume-weighted average closing price of the Zynga common stock during the 30 consecutive trading days immediately preceding the date of the Share Sale and Purchase Agreement, subject to adjustments as set forth in that agreement.

The challenges included: (i) Several different groups of selling shareholders (founder, different classes of investors) with sometimes competing interests, priorities and approaches to the transaction and to the transaction agreements, requiring extra coordination and agreement among themselves and with Zynga; (ii) Important agreements to be reached with Mr. Sidar Sahin and the management team of Peak for the post-closing period; (iii) Spin-off of a unit of Peak as part of the transaction; and (iv) Merger clearances needed in the US and Germany during a pandemic.

Peak Games and Mr. Sidar Sahin and Zynga knew each other from when Zynga acquired the mobile card game studio of Peak Games a few years ago.  That helped make the deal happen more quickly than it might otherwise have.

Selahattin: We were representing one of the early investors to the PEAK Games, a Brussels-based private equity house, Hummingbird. We assisted our client on Turkish law matters with respect to handling their investment in their portfolio company as well as acting as the transaction counsel to Hummingbird during the sale process.

Murat: The project involved the acquisition of Peak’s shares by Zynga in their entirety under the terms and conditions set forth in the SPA. Well, it was agreed by the parties that the closing of the deal would be an “exit” for all the shareholders, except Sidar Sahin, who would remain as the CEO of the company thereafter.

As I mentioned, the management team including Sidar agreed to remain in their then-current positions in Peak after the closing of the deal. This of course affected our level of responsibility and we had to be concerned not only about the completion of the share transfer at the closing but also the status of Peak and the management team at the post-closing stage. It was therefore important for us to close the deal smoothly and consider each and every detail for the Peak team to continue operating at its best following the acquisition. [In the process], we also had to balance the respective interests of Peak’s management team and the other parties to the SPA and come up with solutions that satisfies each of them to a certain extent.

Throughout the project, we worked exceptionally closely with the management team. Whenever a document was circulated, the management team members, Beril, and I would review it individually, then have a video call to discuss our comments, and then revise it accordingly and send it to the attention of Baker McKenzie. Since we had already been working with those individuals during the years, it enabled us to truly understand their (and Sidar’s) needs and concerns, which we believe accelerated the negotiation process.

CEELM: What is the current status of the deal?

Asli: The share purchase agreement was signed on May 31, 2020, and closing took place on July 1, 2020. 

CEELM: What was the most challenging or frustrating part of the process?

Eren: This deal was exceptionally complex, for the following reasons, among others: there was warranty insurance and escrow, the purchase price was paid in cash and Zynga stocks, there were multiple sellers, there were anti-trust filings in multiple jurisdictions, and the governing law of the documentation was UK law with US and Turkish laws applying due to the home jurisdictions of the buyer and the target. Along with us, Baker McKenzie’s London, Washington, Chicago, and Dusseldorf teams acted as a single unit and were able to provide fast and accurate advice to Peak, despite the time crunch and various time zones in play.

Another challenging part was managing the communications and negotiations between the sellers. Although everyone cooperated, it was not always easy to get aligned on all legal and commercial points.

Asli: This was a complex, multi-jurisdictional, fast-moving transaction with a US public-company buyer (which brings it with its own requirements) and sellers from Turkey and other jurisdictions. It wasn’t frustrating, but it was challenging and required all parties to handle a range of legal issues to reach agreement.

Selahattin: There were multiple sellers in the transaction with different priorities, as can be expected in such transactions. Managing those priorities and finding mutual understandings when the parties were negotiating against the purchaser was challenging. It was also a complex transaction, including an escrow mechanism, W&I Insurance, and partial consideration in stocks, and it was subject to multiple jurisdictions (US, English, Turkish, etc.).

Murat: The most challenging part of the process was to adapt to the significant changes that we had to make in our professional and personal lives due to coronavirus, while at the same time working intensively on the project. All negotiations in this project had to be conducted and concluded in an electronic environment since all the parties involved had to adjust to today’s pandemic circumstances. I must confess that it was not as hard as I thought, considering that the working from home system has its own benefits, such as being able to be reachable at all times, managing your time more efficiently, etc.      

Other than that, as in most of the M&A deals, there was huge time pressure on all the parties; yet this was one of those times where it came with a ten-hour time difference between the purchaser (Zynga) and the sellers.

It was also challenging that we had to wear two hats in this deal: We were representing a seller, who agreed to transfer all of his shares in Peak, and an executive, who would continue to serve as Peak’s CEO, at the same time.

Since the shareholders of Peak then consisted of four investment funds and three individuals (including Sidar Sahin), there were a lot of different interests and priorities at the table for this project.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

Eren: Peak and the sellers mandated us in March, and due to the COVID-19 pandemic, that was the only meeting we held physically until the closing meeting. All communications, negotiations and everything other than our kick-off meeting were done over the phone, Zoom, and e-mail. The share purchase agreement was signed on May 31, and the deal closed on July 1, 2020. In such a short period of time, without holding physical meetings, we were able to close the deal in line with expectations and the schedule. I literally did the deal out of a ten-square-meter hut. This was unexpectedly smooth and easy. When governments initially implemented lockdown measures, we were concerned about how to coordinate this deal, but everything went really well.

Asli: The desire to do the deal was there.

Selahattin: The transaction was relatively fast despite the pandemic given that the parties were active in the same market and had a great knowledge about each other. Zynga acquired the board games of Peak earlier so there was lot of rapport between the sellers and Zynga. This helped the process move smoothly.

Murat: After an intensive negotiation process, the SPA was about to be signed in two days. While we were expecting that the tension would increase as we got closer to the end, the parties instead agreed on the outstanding issues more swiftly than we thought. This was unexpected; yet welcomed, since it showed that all the parties were comfortable with their respective positions under the SPA.   

CEELM: Did the final result match your initial mandates, or did it change/transform somehow from what was initially anticipated?

Eren: The final result matched our initial mandate. Our initial mandate was in March and the deal was signed at the end of May. The entire process was very quick, despite multiple party negotiations, multiple jurisdiction analyses, and COVID-19 social distancing measures.

Asli: It matched our initial mandate, which was to assist Zynga from the term sheet stage all the way through closing of the transaction, putting in place of post-closing arrangements and the like. We were involved throughout and worked closely with the Zynga team.

Selahattin: Yes, it matched our initial mandate.

Murat: The final result did match the initial mandate of the parties: It was contemplated that all the shares of Peak would be acquired by Zynga, while the management team, including Sidar Sahin, would continue to manage the company thereafter. Upon closing of the deal, this mandate was realized. The final result also matched the initial mandate of our client, Sidar Sahin. His priorities were to ensure a smooth transition process for the Peak team and the successful continuation of Peak’s operations in Turkey with the same team.

CEELM: What specific individuals from your clients instructed each of you, and how did you interact with them?

Eren: We were instructed by the Peak management team. The Peak and Esin teams acted as one team, communicating on the phone, WhatsApp, and Zoom, basically 24/7. Due to the time pressure and the teams’ desire to close the deal as quickly as possible, the Peak management team worked with us every day - they were very capable and transparent, and not once did we face any difficulty in receiving information or feedback from Peak.

Asli: Ms. Phuong Philips, GC at Zynga, and Mr. Matt Tolland, Assistant GC

Selahattin: We were instructed by Lukas Decoster and Fırat Ileri of Hummingbird and we worked very closely with them.

Murat: As I mentioned before, we worked exceptionally closely with the management team. Considering the time pressure, and the time difference between the parties, every day we spent countless hours having conference calls and working through the project documents together. Well, we already had an established bond with the management team but I think this project took our relationship to a whole other level! Every day and almost every minute, we were either having video calls or messaging each other. Such a busy schedule could have been overwhelming; yet we were lucky to have worked with the management team. We were all excited about the project and trying to enjoy it as much as we could and that created a great harmony among us. We knew that the management team, including Sidar Sahin, had played a significant role in Peak’s success, but with this project, we had the chance to clearly understand why their roles had a great impact on the company. As an effective visionary leader, Sidar has formed a team with extensive knowledge and well-earned experience that is passionate about the company’s business and their contributions to its success. During the project, we were highly impressed by their work ethic and ability to make the right decisions swiftly, even after having spent restless days and nights. Sidar and the team’s energy made this experience unique for us.      

CEELM: How would you describe the working relationship with each other on the deal?

Eren: All the communications between the firms were done over e-mail, phone, and Zoom. We had no physical meetings other than the kick-off meeting we held with the Peak management team and the closing meeting held at our offices in Istanbul. We led the negotiations on behalf of Peak and all the sellers. Since we have good relationships with White & Case/GKC Partners and the law firms involved in this transaction, we worked in harmony, trying to accommodate each other’s requests.

Selahattin: All the work among counsel for all parties (each investor had its own counsel and Esin/Bakers represented the company and coordinated all the various counsel) was done remotely primarily via Zoom calls. The working relationship among counsel was good, [as] many of us have worked together a lot over the years.

In the busy weeks leading up to signing, there were round-the-clock meetings and calls, negotiations, exchange of drafts and different work streams, some legal, some business, all working at the same time to get there. 

Selcuk: Given the number of parties involved in the process, we worked with other law firms, both on the same and opposite sides.  It was a pleasure to work with all the law firms involved.  We believe all firms did a great job to focus and finalize the transaction in the targeted manner and deadlines.  Even though each seller had its own legal representation, given the different priorities involved, all of them used one law firm to negotiate against the purchaser, which eased the process of negotiation and communication with respect to dealing with the purchaser and its legal counsels.

Murat: Since the project had been kicked off during the coronavirus pandemic, all the communication between the parties and the law firms was made over email and phone. No in-person meeting was held on our side, except for the closing ceremony where there had been a physical meeting held with all the parties involved.

Throughout the deal, we worked closely with Baker McKenzie, as the other firms did as well, since Baker McKenzie represented all the sellers. Especially when negotiating the SPA, almost every day we exchanged emails with Baker McKenzie back and forth and had numerous calls to resolve matters as quickly as possible. We were happy that the Baker McKenzie team members always gave quick responses and were reachable at all times. We thank them for all their hard work to make this deal happen.       

CEELM: Finally, how would you each describe the significance of the deal?

Eren: Turkey has a young population full of talent and eagerness. However, the startup ecosystem is not as advanced and supportive as it is in countries like the US. These young people who are ambitious to follow their dreams sometimes have questions about whether they should do so in their homeland, or somewhere else where they can have access to better financing and mentoring. Despite the young talent, Turkey had never grown a unicorn. But now the Turkish youth has Peak to look up to - a Turkish start-up becoming a global brand. It is an inspiring story. It is a reason for the youth to stay home and follow their dreams. That’s why although in most M&A transactions where the buyer is not Turkish there is a lot of nationalist criticism about Turkish assets being sold to foreign investors, in the case of Peak, they became national heroes. I have never seen a transaction that received so much publicity and lifted spirit of every single Turkish citizen. Even the politicians combined around Peak’s success. The closest thing I know to the Peak transaction is Turkish national football team winning third place in the World Cup in 2002!

Asli: This transaction was significant for the sector, for Turkey, for Zynga and of course for us.

As you know, this transaction represents the largest acquisition of a Turkish start-up company ever and makes Peak Turkey’s first technology “unicorn.” According to Zynga, Peak is one of the world’s best puzzle game makers and Zynga considered it a good opportunity to Peak’s creative and passionate talent to its portfolio. With the addition of Toon Blast and Toy Blast, in particular, Zynga is expanding its live services portfolio to eight forever franchises, meaningfully increasing its global audience base and adding to its exciting new game pipeline.

This transaction and other Zynga deals that proceeded (Gram Games and, most recently, the signing of Rollic Games) demonstrate that Turkey is a successful worldwide hub for game development, attracting attention from major strategic players who want to add to their portfolios and grow their business and user bases.

For White & Case and GKC Partners, this transaction really played to our strengths.  Here, we were able to cover all of the relevant jurisdictions and specialties that played an important role in the transaction, from US capital markets, to M&A, to the critical IT/IP and data privacy components, multijurisdictional tax analysis, competition filing assessment across many jurisdictions. We worked seamlessly across a large multijurisdictional team, worked effectively with many counterparties (the sellers), all coordinated by Baker McKenzie but having their own counsel. We were asked by Zynga’s legal team to take responsibility for many critical aspects of the transaction and to work closely alongside them and their business team to drive this deal to signing very quickly given its size and complexity.

It is always a pleasure to work with Zynga because of the quality of their people and how well they function as a team and appreciate the contributions of their counsel. This made the transaction, and others we have done with them, even more important and fun.

Selahattin: It is great to be a part of the first unicorn exit of the Turkish market. It is the biggest transaction in the Turkish market so far and most probably it will stay that way for quite some time.  It gives a great message about the Turkish market with respect to the potentials of the start-ups, tech companies, innovative and open minded business models and shows that if supported, we are very well equipped and have the talent and a great potential to create and manage unicorns and companies capable of globally competing in different and new areas. 

Murat: Since the coronavirus pandemic, people have been experiencing a slow-down in the world’s economy and in most business sectors. Unfortunately, the number and the volume of foreign investments (and therefore of M&A deals) in Turkey also decreased in the past few years. This project, on the other hand, has been conducted and completed during the pandemic and, with a deal worth USD 1.8 billion, makes Peak the first “unicorn” in the technology sector of Turkey and one of the most valuable companies in Turkey’s history.

We believe that the project had a great influence on the pessimistic atmosphere in the world and in Turkey and reminded potential investors that Turkey might be the right choice for them. Also the international news on the project showed the world the success of a Turkish start-up company and that there are indeed big and serious Turkish players in the global gaming sector. The project is also promising for the young entrepreneurs in Turkey since they now know for sure that anything can be done with dedicated hard work and a visionary mind.

Finally, we would like to point out that it was highly crucial for the management team that Peak continued its operations in Turkey because Sidar Sahin was always willing to keep contributing to the growth of the Turkish economy. With a vision to change the world, he emphasized from the beginning of the project that this was “just the beginning” .

We feel lucky to have the chance to work with such a leader and his impressive management team, and we are proud to have been a part of this project.

This Article was originally published in Issue 7.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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