Leaders League: What are the main challenges in the Italian market for a transactional lawyer and how does Pavia e Ansaldo overcome them?  

Paola Carlotti – Riccardo Robuschi: The current geopolitical instability and economic uncertainty contributed to the downward trend in M&A deals in the second semester of 2022. In this scenario, clients’ attitudes towards M&A processes are changing rapidly: with corporates being short on liquidity and returns from private equity dwindling, clients now look more than ever for reliable advisers who can provide legal protections and efficient deal structures. It’s become essential for lawyers to adopt a cross-cutting and adaptive approach to current challenges in the market.  

To cope with the present situation, Pavia e Ansaldo will focus on its ability to tailor both traditional and innovative solutions that enable the clients to pursue their deals, by overcoming the target’s most critical issues. The firm will rely on the solid integration of its interdisciplinary teams of experts to provide a truly all-round service and to function as a strategic advisor on day-to-day management issues.  

In order to satisfy the client’s need for greater protection, value and risk assessments will have to focus on the core aspects of the targets and go beyond traditional due diligence analyses, by examining, for example, ESG issues and management processes.  

The firm also purports to meet client’s expectations by promoting a change in the legal advice culture and fostering a greater involvement in the client’s businesses. Pavia e Ansaldo’s lawyers strive to develop and combine traditional legal skills with the economic and business knowledge of the issues affecting its clients. Finally, a key to successfully overcoming difficulties in the coming months and provide clients with the most efficient and innovative solutions will consist of an ability to take advantage of the set of new legislations adopted by the Italian government (which include subsidies, tax incentives and the long-awaited insolvency law reform).   

Pavia e Ansaldo’s lawyers strive to develop and combine traditional legal skills with the economic and business knowledge of the issues affecting its clients

What are the key Italian M&A trends and do you think they will stick? 

Paola Carlotti – Riccardo Robuschi: 2021 will be remembered as a record year for the Italian M&A market, which rapidly recovered from the halt due to the pandemic. On the contrary, the usual optimism among dealmakers cooled during the first semester of 2022, with several issues looming over the M&A market. The increase in inflation, the disruption of the supply chains and the energy crisis, exacerbated by the war in Ukraine (among other factors) have contributed to a slowdown in M&A activity and reduced deal volume.  

Amidst these headwinds, there are sectors that are nevertheless attracting a high level of interests among investors and continue to see significant levels of M&A activity: industrial and chemical, consumer and TMT.    

Notwithstanding a slight decrease in the number of deals, private equity (PE) activity continues to play a leading role in the Italian market, due to the significant amount of dry powder available at PE firms.  

Forecasting deal making performance is difficult, especially considering the global economic and political outlook. Italian market players should watch several factors closely, including how efficiently the government will use the Next Generation EU funds and how the current global supply-chain and energy crisis will evolve.  

Still, financial sponsors are showing a strong appetite for high quality assets, which might have lower valuations than last year.  

The post-pandemic and Ukraine war crisis have subverted some business models and company structures, but will also bring about new investment opportunities for dealmakers ready to place perceptive and courageous bets, especially in the context of digitalisation and the green transition.  

How has fund investment strategy changed in recent years?  

Paola Carlotti – Riccardo Robuschi: PE has acquired an increasingly important role in the Italian M&A market over the last few years, becoming a crucial source of transactions, registering an overall €57.2 billion in terms of deal value in the first semester of 2022.  

However, sponsors have not been spared the fallout from high market volatility which has been a fact of life since the onset of the pandemic. Dealmakers are now facing serious difficulties in generating profits and PE players have progressively focused on sophisticated strategies to create value, making use of digital technologies and data-driven M&A solutions to scout the most attractive targets. 

Investors have also become more selective and are refocusing on companies that demonstrate resilient business models and profitable growth.  

Thanks to recent changes to the law within and outside Europe, and the surge of social awareness, investment strategies now have to adjust to ever higher standards of compliance. In particular, the last number of years have seen rising interest in environmental, social and governance matters (ESG), which have become an essential requirement for business success. Initially considered as reputational and intangible assets, a sort of nice-to-have, the ESG issues have rapidly risen to deal breaker status.  

In recent years, PE firms have also prompted the use of private capital in deal financing, expanding the role of credit funds in the market of leveraged buyouts. Due to their risk-taker attitude and flexibility, credits funds are gradually overtaking banks as a primary financing source. Moreover, as the IPO market recently witnessed a significant downturn, credit funds will likely become the leading financing source for the leveraged M&A.   

PE has acquired an increasingly important role in the Italian M&A market over the last few years, becoming a crucial source of transactions

What will the impact of the pandemic and the energy crisis be on corporate restructuring in your opinion?   

Paola Carlotti – Riccardo Robuschi: After the dramatic years of the Covid-19 pandemic and the show of surprising resilience by the Italian market, the current energy crisis might be the thing to jeopardise the growth and stability of many companies.   

As energy price surge, the supply chain crisis, and rising inflation could, in the medium term, increase the number of distressed companies, and, consequently, the number of distressed acquisitions.  

According to recent surveys, almost one fifth of Italian companies have financial, tax and social security debts that are disproportionate to their ability to generate cash-flow, and we are still not able to predict the magnitude of the disruption caused by the current energy crisis.  

These companies will benefit significantly from the restructuring of their debts, especially if the appropriate measures will be adopted timely, before the crisis has fully manifested itself.  

The current situation will test the effectiveness of new tools for crisis and insolvency resolution made available by the new Italian code for business crisis and insolvency (the “New Code”), which was adopted by Legislative Decree No. 14/2019 and entered into force on 15 July 2022, as last amended to transpose the EU Insolvency Directive.  

The various instruments newly introduced in favor of distressed companies aim at encouraging and facilitating – even against a greater sacrifice of the creditors’ interests – the rescue of going concerns and the protection of company stakeholders, including the workforce. 

Among the tools designed to prevent the opening of the insolvency proceedings, the so-called negotiated settlement (composizione negoziata), which has not been sufficiently used so far, will prove to be extremely valuable in the coming months, especially for SMEs.