Covid 19: An Italian Perspective
It fast became the epicentre of the Covid-19 pandemic in Europe, but for the first time since daily reporting began on the number of cases and deaths, Italy has finally recorded its first decrease in the number of people infected with the coronavirus disease.
Italy has been battling Covid-19 since its first 2 cases were reported at the end of January 2020. To date, more than 27,000 people have died from the disease in Italy, and following regional restrictions in the most affected northern areas, a national lockdown was eventually rolled out nearly 7 weeks ago as the virus rapidly spread from the Lombardy area to the rest of the country.
In a bid to reduce the spread of the disease, lockdown measures introduced by Italian Prime Minister Giuseppe Conte have been amongst the most rigid. All schools and universities, bars, restaurants, shops and businesses were closed, with travel and journeys outside the home severely restricted, and production and manufacturing shut down since early March.
Economic repercussions are inevitable. The New York Times Rome bureau chief Jason Horowitz referred to the expanded lockdown as "sacrificing the Italian economy in the short term to save it from the ravages of the virus in the long term". Milan is considered the country's economic capital while Venice is one of its most important tourist destinations - the regions of Lombardy and Veneto alone produce a third of Italian GDP.
Our ICFG member in Italy, Palmer Corporate Finance, is navigating its way through the current restrictions, and has given an update on the situation from their well-placed perspective on the ground in Milan.
With his wife working on the frontline as an Anaesthetist, Sandro Scaccini, Managing Partner at Palmer, is experiencing the lockdown first hand on both a personal as well as a professional level. He has continued to run the business from his home in Milan, along with his colleagues based in their respective homes, since the initial lockdown in his locality were introduced at the beginning of March.
Like many corporate finance businesses around the globe, the last seven weeks have been a damage limitation period for Sandro and his team, focusing on putting emergency plans into place to save ongoing deals and transactions. Finding solutions to progress current deals has been the main challenge, and for those transactions which were near to completion at time of lockdown, restricted mobility and a lack of direct interaction with clients has proved impossible. Not every aspect of business is conducive to remote working.
Before the lockdown Sandro was working on 2 deals in the luxury goods sector, an industry which has been particularly hard hit by the coronavirus pandemic. This sector is likely to be slow to recover, as most consumers focus on buying essential goods and products to survive the current conditions and for the next months to come.
One of the businesses Sandro has been working closely with in this sector has very quickly repurposed its production and manufacturing lines from luxury goods and clothing items to making much needed PPE for frontline staff, ensuring their survival through this challenging economic period in the short term at least.
Sandro has extensive experience of the luxury goods market, where Italy has many small companies and producers in the 5 to 15M Euro bracket. These small companies hold an unrivalled wealth of knowledge and experience in the luxury goods sector, skills which will be lost if these smaller firms are unable to re-open soon. Sandro is sure this sector will return, however restrictions on travel into Europe by consumers from the USA and Asia will have a long lasting negative impact.
There is recognition from Sandro that Palmer Corporate Finance will need to spend time looking at the markets they choose to operate in going forward. Where luxury goods, catering, hospitality and entertainment sectors have suffered greatly at the hands of Covid-19, other areas like IT, Pharma, Food and Biomedical machinery production have been less impacted.
In the months to come, Sandro predicts that in Italy, where 85% of the economy is made up of small to medium caps, there will be a strong need for these sized companies to merge to survive. From an M&A perspective this will of course produce opportunities for Palmer Corporate Finance, however investors will look to buy companies at lower prices and lower variables bringing other challenges to the table.
Maintaining existing relationships have been key during this time, talking daily and connecting remotely with contacts, clients and colleagues to manage plans of action going forward and keeping opportunities alive.
In talking to Private Equity funds, Sandro confirms that money and investment opportunities are there. Aggregated and merged businesses will be of particular interest in the coming months for PE funds, notably opportunities in industrial and commercial sectors. There is also an intention to push money from investors in the USA into Europe once the situation becomes clearer. Although a clear timeline for imposed restrictions being gradually lifted and businesses beginning to re-open is yet to be determined.
With little tangible help from the Italian government for businesses being forthcoming, and uncertainty over what action will be taken by the European Bank, Sandro remains rightly cautious over the speed of the economy’s recovery in Italy.
For further information on our member firm in Italy, please contact:
Sandro Scaccini, Partner at Palmer Corporate Finance, Milan, Italy