Leading spirit maker Diageo announces it is acquiring Turkey’s Mey İçki for $2.1 billion. The global giant will have a solid foothold in the rapidly growing Turkish market, as Mey’s rakı and vodka brands are the market leaders in a young, dynamic country.

TPG Capital, which had bought 90 percent of Mey in 2006 for $810 million, has recouped about five times its investmen thanks to the sale...

Diageo plans to make its biggest purchase in more than a decade by acquiring Turkey’s Mey İçki in a transaction that values the country’s largest rakı producer at 3.3 billion Turkish Liras ($2.1 billion).

The acquisition from private-equity firms TPG Capital and Actera furthers Diageo’s aim of expanding in emerging markets that have “a rapidly growing middle class,” Chief Executive Officer Paul Walsh said Monday.

“We see the Turkish market having high growth potential and Mey İçki’s market position is attractive with relatively high margins,” Bloomberg News quoted analysts including Jason DeRise at UBS in London as saying Monday.

Mey İçki, which Diageo estimates controls 80 percent of the market for rakı, may not be the last acquisition by the world’s largest distiller, analysts said. Diageo, the owner of Smirnoff vodka, aims to make purchases in markets where growth is the fastest, Chief Financial Officer Deirdre Mahlan said in an interview this month after the company reported first-half revenue and profit that missed estimates.

Rakı is Turkey’s most popular spirit. In its description of rakı, Diageo said the spirit was “traditionally consumed with food and therefore does not compete directly with international brands,” emphasizing its strong point.

“We have made Mey a global company,” said Galip Yorgancıoğlu, Mey İçki’s CEO, in a statement. “The acquisition by Diageo is a stamp of approval on this success. Now, we will have the chance to assess expertise and development opportunities presented to us by a leading global drinks business.”

Diageo shares have gained 1.4 percent this year, giving the company a market value of 30.1 billion pounds ($49 billion), Bloomberg reported.

The acquisition of Mey İçki will add 1 percent to Diageo’s earnings per share in the first year of ownership, the distiller said. The deal will be funded through existing cash resources and debt.

Cost savings from the purchase will not be significant, Andrew Morgan, Diageo’s European president, said Monday. Diageohopes to settle an unrelated tax issue with the Turkish government in the next couple of weeks, he said.

Biggest acquisition since 2000

The distiller is paying 9.9 times Mey İçki’s 2010 earnings before interest, taxes, depreciation and amortization, or Ebitda, Morgan said. The average multiple paid in the wine and spirits industry in the past 10 years is 12.7 times Ebitda, data compiled by Bloomberg shows. The purchase is Diageo’s biggest since the 2000 acquisition of the Seagram’s liquor business from Vivendi.

The multiples paid by Diageo are “undemanding,” said Andy Ford, an analyst at MF Global. “Turkey’s economy is growing rapidly and its population is young and urban, both of which are positive for likely future spirits market growth,” Bloomberg quoted Ford as saying.

Turkey’s per capita income rose to $8,600 in 2009 from $3,500 in 2002, according to figures from the Treasury. TheTurkish government’s medium-term plans see the figure reaching $10,600 this year.

The number of households that earn more than $15,000 a year is set to grow to more than 60 percent of the population in the next few years, Morgan told Bloomberg.

Mey İçki has a distribution network that reaches 57,000 outlets and employs more than 650 sales people. The distribution chain will help Diageo sell international spirits brands in the country as well as Mey İçki’s existing products. Sales of beverages including Diageo’s J&B and Johnnie Walker whiskies are already growing in the country, according to Morgan.

Persuading the consumer

Diageo has the skills to persuade Turkish consumers to buy more expensive brands of rakı, as well as international spirits brands, Barclays Capital’s Chand said. Mey İçki’s mainstream brand “Yeni Rakı” represents 64 percent of its rakı sales compared with the more expensive “Tekirdağ” brand, which represents about 9 percent of the market, according to Diageo.

Mey İçki is also Turkey’s market leader for vodka, the fastest-growing alcohol category in the country. The acquisition may allow Diageo to increase sales of Smirnoff in the country. Vodka is gaining popularity among younger drinkers and women, as well as in bars and restaurants, Diageo said.

UBS and HSBC Holdings reportedly acted as financial advisers to Diageo in the sale, which will be completed in the second half of the year. TPG and Actera were advised by the JPMorgan Chase and Goldman Sachs Group.

TPG recouped its investment about five times by selling Mey İçki to Diageo, a person familiar with the transaction told Bloomberg. The buyout firm said Monday that its “local knowledge” of the Turkish market and “unique experience in improving and growing businesses will present other opportunities to invest in this attractive market.”

TPG this month said it would offer 25 percent of Mey İçki in an initial public offering. TPG, the Fort Worth, Texas-based firm run by David Bonderman, bought 90 percent of Mey İçki in 2006 for $810 million. The seller was a local joint venture led by an association of beverage sales agents, which paid Turkey’s government $292 million for the company in 2003. Actera Group, an Istanbul-based private-equity firm, holds the remainder.

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