by Lorenzo Bacciardi, LL. M    –  Head of  Corporate Finance and M&A Department

Unlike other crises or recessions we already experienced, the Covid-19 pandemic will have negative effects on the entire global economy.

Not only will national economies find a radically changed economic environment, but the critical issues of thisimminent recession require the manufacturing world to identify and immediately implement the best disaster recovery strategies.

 

finanza-alternativa-bacciardiPhoto by StartupStockPhotos@Pixabay.com

The current business environment.

Many Italian companies are too small to resist alone and ensure continuity in the future context of post coronavirus crisis. They will soon have to deal with the strong and sudden liquidity crisis. With heavily reduced turnover, they will not be able to continue operating without a considerable injection of funds.

They must also quickly reorganize their operations, restructure and strengthen themselves financially to recover or maintain competitiveness in the new context of the post-Coronavirus economic crisis.

The banking system.

The Italian banking system has lost its function of supporting the strategies and growth plans of Italian companies for years now. Today, more than yesterday, Italian banks will not be able to provide the necessary support on their own since:

  1. they maintain an increasing amount of non-performing loans;
  2. have difficulty adapting to the higher capital requirements imposed by the Basel 2 and 3 agreements;
  3. on 26 March 2020 they underwent a further downgrade in their rating by the Moody’s agency in the face of the recent crisis;
  4. they will not be able to provide sufficient credit to the small and medium-size Italian companies, not even following the backup guarantee provided for by the recent government measures, which, among other things, they secure only 33% of the new credit granted and are subsidiary in nature, for which the funded company will be asked to repay the funds first.

What Italian companies must do specifically

Companies must use non-banking equity and debt finance solutions from private equity and private debt funds, through which they will be able to source patient capital to be used to:

  • support recovery plans, bank debt restructuring or corporate reorganization;
  • expand working capital or to strengthen the company’s financial structure;
  • finance and support development and growth, develop new products and new technologies;
  • implement new strategies based on corporate acquisitions and business combinations or joint ventures;
  • successfully tackle generational changes or other critical processes of the corporate life cycle.

In addition to finance, unlike banks, private equity and private debt funds provide managerial know-how, commercial synergies, facilitated and accelerated access to foreign markets or distribution channels, contacts and relationships with other entrepreneurs of the same industrial sector or adjacent sectors.

Italian companies will also have to use the fintech channels, available through digital online platforms, which:

  • provide debt financing which do not provide for restrictions on use or guarantees; or
  • provide digital factoring through the transfer and disposal of commercial receivables.

Lastly, they will have to strengthen their production and commercial, as well as financial and equity, structure through forms of aggregation and combination between entrepreneurs in the same sectors or in adjacent sectors.

Where to start

First of all, it is necessary to evolve and change the current entrepreneurial culture, review the suspicions towards solutions previously considered impractical, break the usual patterns and conceive new strategies in a new and unexplored context.

Many of the Italian companies have maintained for too long an attitude of “unjustified” diffidence with respect to non-banking equity and debt finance, preferring ordinary bank financing, despite the high costs in terms of bureaucracy and the need for substantial guarantees to support credit.

Until a few days ago, we were convinced that smart working would be difficult to implement in our businesses, that digital payment systems would never replace paper money and that commercial or business transactions did require the physical presence of the negotiating parties.

But these, in some instances, very solid beliefs, broke in an instant!

It is necessary to change mentality and reinvent the future. But it must be done quickly because we no longer have time.

The services of Bacciardi & Partners to support business

Bacciardi and Partners has always assisted companies in sourcing non-banking equity and debt finance to support growth, expansion, and M&A transactions, both domestically and abroad, and is able to scout investors and partners, financial and industrial in nature, operating in Italy or abroad, in order to support the development and growth of companies, especially on foreign markets, or in order to facilitate the generational transition.

Do not hesitate to contact us should you need any further information