First, the pandemic and now the war has put a strain on Italian businesses. Inflation and increasingly intermittent supply chains were (and are), in fact, two unexpected phenomena that have brought many companies to the brink. Yet on closer inspection, as BankItalia’s latest report shows, there have been far fewer bankruptcies than expected. State support has been a godsend for many players, but problems may soon arise. That’s why many turn to business crisis professionals as a life-or-death choice. Stefano Bennati, partner-founder and managing director of Europa Investimenti, a company specializing in Special Situations, told We Wealth about this.
The numbers speak for themselves: despite the pandemic, bankruptcies in Italy have decreased. How can this phenomenon be explained?
According to Bankitalia’s latest report on the business crisis in 2020, the number of bankrupt companies is significantly lower than in previous years: just under 7,400 companies have initiated liquidation bankruptcy proceedings, compared with nearly 11,000 in 2019. Businesses exiting the market also decreased year-on-year, from 70,000 to 50,000-a 27 percent drop. There is no question how vital the support of the state has been in this regard. After years of concern about the financial system, the focus has shifted from saving the banking system to saving businesses. Sace and Medio Credito centrale provided new financing to companies with liquidity needs against a state guarantee. As a result, there were fewer bankruptcies, and the Italian economic system experienced a generalized recovery. However, among the companies that have benefited from state aid are not only companies that were solid before the pandemic but also companies that went to cover operating losses with this financing. In other words, companies that have become financially weaker may be unable to repay the funding in the medium to long term. Some signs of this are already beginning to be seen, with banks’ Npe growing.
After the pandemic, now the war….
We were in a phase of economic recovery, partly on the emotional stock of people who had returned to consumption. Now we are facing a situation of new complexity. Many companies that are energy intensive are struggling and, in some cases, have already shut down production. Again, there are interventions at the state and community level that will try to make the crisis less impactful, such as reducing fuel excise taxes rather than interventions to support household bills.
What is meant by special situation?
By this term, we mean interventions dealing with complex situations of various kinds related to companies in financial difficulty, whether in insolvency or pre-insolvency. Each situation is a story in itself – it is no coincidence that we talk about single names – and therefore, it is a very different activity from what may be the typical operational activity that is carried out when we talk about, for example, massive debt collection activities. In some ways, it is an activity more like private equity.
How do you flesh out your operations?
As Europa Investimenti, since 2007, we have been dedicated to making special situation investments, intervening as assumers of the arrangement on those situations blocked by pending litigation. The bankruptcy trustee has realized only part of the assets and cannot distribute the amounts to creditors because of litigation.
On the one hand, we accelerate the collection from creditors of the sums owed to them-which often happens when they have been waiting for their money for 30 years. On the other hand, we take care of the liquidation management of the remaining assets. We realize a capital gain where we have been good at valuing residual assets against the purchase price given by the offer to creditors.
Looking at the world of companies still alive, we generally intervene with all those tools provided by bankruptcy law: from composition with creditors to reorganization plans. In this way, we help those companies that are operationally sound — meaning they have sustainable ebitda — but have an unsustainable debt situation to resolve the crisis. Instead, we do not address those heavy industrial turn-around situations where plants have to be closed, and there is a layoff of people. We look for those realities for which financial intervention is decisive.
What is the state of the Italian market?
Demand-side we are seeing a growing number of possibilities for intervention in all sectors. On the supply side, on the other hand, we are still very few to intervene in these situations. I have to say that, fortunately, even large institutional operators, such as Cdp, are also beginning to look at the possibility of giving resources to operators like us to intervene in these situations. Until recently, the interventions of these large institutional operators with a public matrix aimed at supporting healthy enterprises. Now there is a realization that it is also appropriate to help struggling enterprises.
