Panelists at Debtwire's Italian Restructuring Forum 2016 agreed that the conditions are right for more distressed M&A.
"Italy will be one of the main markets in Europe for distressed M&A in the next three years," says Fedele Pascuzzi, Partner at PwC, reflecting the views of his panel at the recent Debtwire conference in Milan. He is confident about the outlook for more transactions coming to market, thanks to consolidation in the Italian banking sector, increased bank provisioning and a new wave of liquidity aided by investors entering the market. Foreign distressed funds have also been building out their local teams in order to access domestic opportunities.
Bankruptcy law reforms should also help provide some clarity to investors. Antonio di Pasquale, Partner at Hogan Lovells comments "The fact we have a very new legislation and sometimes a limited track record in certain types of transaction is a major obstacle."
He notes that international investors are reluctant to be trailblazers for transactions with limited precedent in the Italian court system. As a result, they will take comfort from Italian investors getting more deals done through the legal system in order to provide a more comprehensive track record.
However, one of the key challenges for more dealflow is the size of companies typically in distress. Small and medium sized companies dominate the bad loan portfolios among the banks, says Pascuzzi, and the average size of companies is too small to register on the radar of many investors. The fact so many of these businesses are family-owned also makes it challenging for international investors to access opportunities, as founders and entrepreneurs have been reluctant to external influence. Di Pasquale agrees that the typical reluctance of Italian enterpreneurs to make governance changes is beginning to shift.
The speakers sense a change in the attitudes of banks, courts and entrepreneurs that they expect will lead to more distressed M&A in Italy in the years to come.
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