Oliver Wyman to advise on sale of rescued Italian banks

02 February 2016 Consultancy.uk

Following the collapse of four Italian banks due to a range of bad loans, special EU sanctioned tools were instantiated to deal with their bad debts and recapitalise them in an orderly manner. As part of the process Oliver Wyman will support the Italian authorities find buyers for the bad debt.

According to recent research from Oliver Wyman and Intrum Justitia, Europe faces more than €580 billion in non-performing loans (NPL), of which 90% is held by institutions in developed countries. Italy holds the largest stock of NPLs at €161 billion, or 18% of the stock – with SME loans making up 78% of Italy’s NPLs. The effect of these NPLs has in the aftermath of the crisis seen several banks in the country face financial difficulties, including Banca delle Marche, Banca Popolare dell'Etruria e del Lazio, Cassa di Risparmio di Ferrara and Cassa di Risparmio della Provincia di Chieti. Last year these four banks – all have a focus on lending to the SME market – succumbed to their debts and entered into special administration. 

As part of the European framework to deal with banks that are in trouble within EU member states, a number of rules regarding how failing banks are dealt with have been put in place. The aim of the rules, called the ‘EU Bank Recovery and Resolution Directive’ (BRRD), is to reduce the requirement for state aid by, among others, creating a set of ‘resolution tools’ to support troubled banks through organised restructuring in a manner that sees shareholders and creditors of the bank (under resolution) bear an appropriate part of the losses.

As part of the framework to support the four banks through their current troubles, Italy set up a resolution fund that will provide €3.6 billion to cover the negative difference between the transferred assets and liabilities and to capitalise the bridged banks. The funds themselves have been financed by contributions from the Italian banking sector to the resolution fund. According to sources the four banks' impaired assets were written down by more than 80% to €1.5 billion, and the lenders' assets and liabilities, will be sold in coming months. Customer deposits will remain fully protected.

The restructuring effort was provided the go ahead by the EU late last year, and consulting firm Oliver Wyman, which in recent years provided support to many failing banks as well as supported the ECB’s stress testing overhaul, as well as French bank Societe Generale, have been called in to advise on the sale of the assets and debt of the recued banks. “Oliver Wyman will be the strategic adviser and give support on how to organise the sale of the four bridge banks to maximise the outcome,” said an unnamed source to the Italian daily La Repubblica.

The Boston Consulting Group has too been active in the Italian Banking arena in recent months, hired last year to support the Italian Central Bank with the establishment of a ‘bad bank’ asset management company, that will be used to deal with the pile of non-performing loans on the bank balance sheets left over from the financial crisis. In another major transformation supported by consultants, BNP Paris hired both BCG and Oliver Wyman to manage a major cost restructuring effort.

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.